Rule 497(c)
File No. 2-94935
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BRADFORD SHARES 600 FIFTH AVENUE
(the "Fund") NEW YORK, NEW YORK 10020
(212) 830-5220
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SUPPLEMENT TO PROSPECTUS
Effective January 1, 1997, Reich & Tang Distributors L.P., the
distributor of the Fund, became Reich & Tang Distributors, Inc. (the
"Distributor"), due to a restructuring of New England Investment Companies, L.P.
("NEIC"), the former parent company of Reich & Tang Asset Management, Inc., the
sole shareholder of the Distributor. The Distributor has indicated that such
restructuring did not result in any change in its management and will have no
impact upon the Distributor's performance of its responsibilities and
obligations.
In addition, the restructuring resulted in the change of name of Reich
& Tang Services, L.P., the fund's transfer agent, to Reich & Tang Services, Inc.
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BRADFORD SHARES 600 Fifth Avenue
New York, New York 10020
(212) 830-5280
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MARCH 16, 1998
SUPPLEMENT TO THE PROSPECTUS
DATED JULY 31, 1997
This table follows the "Table of Fees and Expenses" of the Fund appearing on
page 2 of the Prospectus.
FINANCIAL HIGHLIGHTS (Unaudited)
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U.S. Government Fund Municipal Money Market
Bradford Shares++ Bradford Shares++
October 1, 1997 October 1, 1997
(Commencement of Distribution) to (Commencement of Distribution) to
January 31, 1998 January 31, 1998
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Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period............. $ 1.00 $ 1.00
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Income from investment operations:
Net investment income.......................... 0.016 0.010
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Total from investment operations................. 0.016 0.010
Less distributions:
Dividends from net investment income........... ( 0.016) ( 0.010)
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Total distributions.............................. ( 0.016) ( 0.010)
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Net asset value, end of period................... $ 1.00 $ 1.00
=========== ==========
Total Return..................................... 4.84%* 2.99%*
Ratios Supplemental/Data
Net assets, end of period (000's omitted)........ $ 49,243 $ 180,299
Ratios to average net assets:
Expenses..................................... 0.86%* 0.86%*
Net investment income........................ 5.49%* 2.94%*
Management and distribution support and
service fees waived....................... 0.18%* 0.17%*
* Annualized
++ Bradford shares commenced distribution on October 1, 1997.
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BRADFORD SHARES 600 FIFTH AVENUE
NEW YORK, NY 10020
(212) 830-5280
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PROSPECTUS
July 31, 1997
The Company, Cortland Trust, Inc. is an open-end, diversified money market fund
designed as a cash management service for institutional customers and
individuals. The Company consists of three portfolios (collectively, the
"Portfolios"). This Prospectus relates exclusively to the Bradford classes (the
"Bradford Shares") of two of the Company's Portfolios, the U.S. Government Money
Market Fund and the Municipal Money Market Fund, (collectively, the "Funds").
THE BRADFORD U.S. GOVERNMENT MONEY MARKET FUND seek to provide as high a level
of current income as is consistent with the preservation of capital and
liquidity. The BRADFORD SHORT-TERM MUNICIPAL MONEY MARKET FUND seeks to provide
as high a level of current income exempt from federal income taxes as is
consistent with the preservation of capital and liquidity. Each Fund invests in
high quality debt obligations with relatively short maturities. Each Fund seeks
to achieve its objective by investing in different types of securities.
Investors may purchase shares of each of the two Funds:
BRADFORD U.S. GOVERNMENT MONEY MARKET FUND ("BRADFORD U.S. GOVERNMENT
FUND"): a portfolio of securities and instruments issued or backed by the
full faith and credit of the United States Government and repurchase
agreements collateralized by U.S. Government obligations.
BRADFORD SHORT-TERM MUNICIPAL MONEY MARKET FUND ("BRADFORD SHORT-TERM
MUNICIPAL FUND"): a portfolio of obligations issued by states, territories
and possessions of the United States and their political subdivisions,
public authorities and other entities authorized to issue debt, the
interest on which is exempt from federal income taxes.
SHARES OF THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THERE IS NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE OR THAT EACH FUND'S INVESTMENT OBJECTIVE WILL BE
ACHIEVED. SEE "INVESTMENT PROGRAMS."
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
Shares of the Funds are offered through a brokerage account with J.C. Bradford &
Co. LLC.
This Prospectus sets forth basic information that investors should know about
the Company prior to investing and should be read and retained for future
reference. A Statement of Additional Information relating to the Company dated
July 31, 1997 has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference. It is available upon request and without
charge by writing or calling the Company at 600 Fifth Avenue, New York, New York
10020 (212) 830-5280.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
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TABLE OF FEES AND EXPENSES
For a better understanding of the expenses you will incur when investing in a
Fund offered pursuant to this Prospectus, a summary of estimated expenses is set
forth below:
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BRADFORD BRADFORD
U.S. GOVERNMENT SHORT-TERM MUNICIPAL
FUND FUND
SHAREHOLDER TRANSACTION EXPENSES 1
Maximum Sales Load Imposed on Purchase
(as a percentage of offering price)......................... None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)......................... None None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable)..................... None None
Redemption Fees (as a percentage of amount redeemed, if
applicable)................................................ None None
Exchange Fee.................................................. None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................................... .76% .76%
12b-1 Fees (after fee waiver)................................. .22%. .23%
Other Expenses................................................ .02%. .01%
Total Fund Operating Expenses (after fee waiver).............. 1.00% 1.00%
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return:
1 year ....................................................... $10 $10
3 years....................................................... $32 $32
5 years....................................................... $55 $55
10 years...................................................... $122 $122
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The above table of fees and expenses is provided to assist you in understanding
the various costs and expenses that you will bear directly and indirectly. (For
more complete descriptions of the various costs and expenses, including fees
waived by the Company's Manager, see "Management.") The expenses and example
appearing in the preceding table reflect current management fees and operating
expenses for each Portfolio of the Company. THE EXAMPLE SHOWN IN THE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Absent fee waivers by the Distributor, Total Fund Operating Expenses would be
1.03% of the Bradford U.S.Government Fund's average net assets and 1.02% of the
Bradford Short-Term Municipal Fund's average net assets. Such fee waivers may be
rescinded at any time without notice to investors.
As a result of 12b-1 fees, a long-term shareholder in a Fund may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
Rules of the National Association of Securities Dealers, Inc.
INCORPORATED HEREIN BY REFERENCE IS THE COMPANY'S PROSPECTUS DATED AUGUST 1,
1996 CONTAINED IN POST-EFFECTIVE AMENDMENT NO. 24 TO THE COMPANY'S REGISTRATION
STATEMENT ON FORM N-1A (FILE NOS. 2-94935 AND 811-4179) FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1996. THE COMPANY'S MOST RECENT
PROSPECTUS IS AVAILABLE UPON REQUEST AND WITHOUT CHARGE BY WRITING OR CALLING
THE COMPANY AT 600 FIFTH AVENUE, NEW YORK, NEW YORK 10020 (212) 830-5280.
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1 Participants in Bradford's optional BCM Program are subject to an annual
administrative fee (currently $50). See "How to Purchase Shares - Purchases
Pursuant to BCM Program." Bradford is the only firm currently proposing to offer
shares of the Funds pursuant to such a program.
2
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HOW TO PURCHASE SHARES
GENERAL INFORMATION ON PURCHASES
Orders for purchase of shares are accepted only on a "business day of the
Company" which means any day on which both the New York Stock Exchange and
Investors Fiduciary Trust Company (the "Custodian"), the Company's custodian,
are open for business. It is expected that the New York Stock Exchange and/or
the Custodian will be closed on Saturdays and Sundays, New Year's Day, Martin
Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas.
An order to purchase Fund shares is effective only when it is received in proper
form and payment in the form of Federal Funds (member bank deposits with the
Federal Reserve Bank) is received by the Company for investment. The Company
reserves the right to reject any order for the purchase of shares. Fund shares
are purchased or exchanged at the net asset value next determined after receipt
of the order. Net asset value is normally determined at 12 noon and 4:15 p.m.
Eastern time on each business day of the Company. Because the Company uses the
amortized cost method of valuing the securities held by each Fund and rounds
each Fund's per share net asset value to the nearest whole cent, it is
anticipated that the net asset value of the shares of each Fund will remain
constant at $1.00 per share. However, the Company makes no assurance that it can
maintain a $1.00 net asset value per share. In order to earn dividends the next
day, purchase orders must be received before 4:15 p.m. Eastern time; otherwise,
the purchase of shares will occur the following business day. Payments
transmitted by check are normally converted into Federal Funds within two
business days and are accepted subject to collection at full face amount. The
Company will not issue share certificates but will record investor holdings on
the books of the Company in noncertificate form and regularly advise the
shareholder of his ownership position.
There is no sales charge to the investor on Fund purchases placed directly with
the Company. However, the costs of distributing Fund shares are borne in part by
the Company and in part by Reich & Tang Asset Management L.P. (the "Manager").
Purchases may be made by following the procedures specified below. If these
purchase procedures are not followed, the processing of orders may be delayed.
PURCHASES THROUGH J. C. BRADFORD & CO. LLC
Purchase Procedures
GENERAL. Shares of each portfolio are offered without a sales charge on a
continuous basis exclusively to customers of J.C. Bradford & Co. LLC
("Bradford"), 330 Commerce Street, Nashville, Tennessee 37201 and other
broker-dealers which may in the future enter into agreements with Bradford. All
investments must be made through your Bradford account executive or such other
broker-dealers.
The minimum initial investment in a Fund is $250 ($100 for retirement accounts),
with no minimum for a subsequent investment. These minimums, however, are not
applicable to purchases made under a cash management program offered by Bradford
or another broker-dealer. See "Purchases Pursuant to BCM Program" below.
Bradford in its sole discretion may accept or reject any order for purchases of
shares.
In the interests of economy and convenience, share certificates will not be
issued. All purchases and redemptions of shares and dividend reinvestments will
be confirmed to the shareholder in the individual account statement
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which will generally be sent to all shareholders monthly by Bradford or other
participating broker-dealers.
Shares of each Fund are offered at the net asset value per share next determined
following receipt of an order by the Fund. The net asset value per share for
each Fund is normally expected to be $1.00.
PURCHASES PURSUANT TO BRADFORD'S REGULAR SECURITY ACCOUNT.
Purchases of shares of a Fund may be made through a regular cash securities
account maintained with Bradford. Such an account may be opened and maintained
at no charge to investors. Bradford account holders may elect optional
checkwriting privileges. See "Redemption Procedures - Redemption by Check." Any
available cash in an account with at least the minimum required investment in a
Fund is automatically invested at least once a week in additional shares of the
Fund designated by the accountholder and made available in connection with the
account. Available cash is transmitted to a Fund for investment after the close
of business on the date on which it becomes subject to automatic investment and
is invested in the Fund at 12:00 noon on the following business day. Available
cash subject to weekly automatic investment is typically invested at 12:00 noon
on the last business day of each week. Shares so purchased will receive the next
dividend declared after such shares are issued, which will be immediately prior
to the 4:00 p.m. pricing on that business day.
Shares of each Fund are redeemed automatically at net asset value as necessary
to satisfy debit balances resulting from settlement of securities transactions,
to satisfy checks written in connection with the checkwriting privilege or
otherwise arising under the account. See "Redemption Procedures - Redemption by
Check". Bradford reserves the right to waive or modify criteria for
participation in an account or to terminate participation in an account for any
reason.
PURCHASES PURSUANT TO BCM PROGRAM. Shares of a Fund may be purchased in
connection with the BCM program pursuant to which available cash will be
automatically invested periodically in shares of the Fund. The BCM program is an
integrated financial services account under which participants maintain a
conventional margin account known as a Securities Account that may be used to
purchase and sell securities and options on margin or on a fully-paid basis.
Participants must pay all customary transaction fees incurred in the use of a
margin account, including normal brokerage fees for securities and options
transactions and interest on margin loans, if any. Available cash in the
Securities Account is automatically invested daily in shares of the Fund
designated by the participant and made available in connection with the account,
or in the Bradford credit-interest program. Available cash is transmitted to a
Fund for investment after the close of business on the date on which it becomes
subject to automatic investment and is invested in the Fund at 12:00 noon on the
following business day. Shares so purchased will receive the next dividend
declared after such shares are issued, which will be immediately prior to the
4:00 p.m. pricing on that business day.
Shares of each Fund are redeemed automatically at net asset value as necessary
to satisfy debit balances resulting from settlement of securities transactions
or otherwise arising under the BCM program as a result, for example, of
transactions made using the program's optional Visa Gold Card or to satisfy
checks written in connection with the program's
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checkwriting privilege on an account maintained at Bankers Trust Co.
("Bankers"). Bradford will charge participants in the BCM program an annual
administrative fee to cover fees and administrative and processing costs
incurred in connection with the services provided by Bankers, as well as the
cost of establishing, maintaining and servicing the BCM program. See the BCM
Program Agreement, available from your Bradford account executive, for the
specific terms and conditions of the Visa Gold card and checkwriting features.
Bradford reserves the right to waive or modify criteria for participation in the
BCM program or to terminate participation in the BCM program for any reason. For
more information on the BCM program, contact your Bradford account executive.
Bradford is the only firm which currently proposes to offer purchases of the
Funds' shares pursuant to such a program. Other brokerage firms may offer
similar arrangements in the future. The manner and frequency with which such
automatic purchases will be effected will depend upon the terms of the
particular program. (See above for a summary of the manner and frequency with
which automatic purchases will be effected under the BCM program). Purchases
made under such a program will be effected through your brokerage account at the
participating brokerage firm. Investments made pursuant to such a program are
not subject to a Fund's minimum investment requirements; however, a
participating brokerage firm may impose its own minimum initial and subsequent
investment requirements. Under such a program, shares of a Fund are
automatically redeemed as necessary to satisfy a participant's debit balance in
the account with the participating firm. Additional requirements or charges not
described in this Prospectus may be imposed by participating brokerage firms,
but are not imposed by the Fund. Investors are referred to descriptions of
brokerage firms' programs for specific information regarding services offered
and applicable charges.
RETIREMENT PLANS.
Bradford maintains prototype plans for Individual Retirement Accounts ("IRAs")
and Simplified Employee Pension Accounts and a prototype defined contribution
plan with adoption agreements for a profit-sharing plan feature, a money
purchase pension plan feature, and a cash or deferred arrangement (401(k) plan).
Bradford will act as custodian for such accounts. Fund shares may be purchased
in conjunction with any such account. For further information as to applications
and annual fees, contact your Bradford account executive.
REDEMPTION PROCEDURES
Automatic Redemption
Bradford will redeem each day a sufficient number of shares of a Fund to cover
debit balances created by transactions through the BCM program or in regular
accounts. For debit balances resulting from the settlement of securities
transactions, Fund shares will be redeemed at 12:00 noon on the date of
settlement, and for all other transactions that result in a debit balance or
charge (except those described below), Fund shares will be redeemed at 12:00
noon on the following business day. Bradford also reserves the right to redeem
shares of a Fund held in an Account which Bradford has terminated as described
above under "Purchase Procedures - Purchases Pursuant to the BCM Program".
Redemption by Request
Shares of a Fund, in any amount, may be redeemed at any time at their current
net asset value next determined after a request is
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received by the Fund. To redeem shares of a Fund, an investor must make a
redemption request orally or in writing through his or her Bradford acount
executive or other broker-dealer. Immediately following the receipt of such a
request, the account executive or broker-dealer will transmit such request to
Bradford, which will forward requests for redemption to the Fund by 12:00 noon
on each business day.
Redemption by Check
As discussed above under "Purchases Pursuant to BCM Program", checkwriting
privileges are included in the BCM program and may be available through a
brokerage account or similar program at a participating brokerage firm. Upon
request, the Fund will provide any investor who does not have checkwriting
privileges in connection with his or her brokerage account with forms of drafts
("checks") payable through Bankers. These checks may be made payable to the
order of anyone, and are subject to a minimum amount of $500. There is no
per-check charge. An investor wishing to use this checkwriting redemption
procedure should complete specimen signature cards available from his or her
Bradford account executive. For a fee imposed by Bankers, an investor will be
able to stop payment on a check redemption. The Company or Bankers may terminate
this redemption service at any time upon 30 days' prior notice and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, nor for returning checks which have not been accepted.
When a check is presented to Bankers for clearance, the Fund will redeem a
sufficient number of full and fractional shares owned by the shareholder to
cover the amount of the check. This procedure enables the shareholder to
continue to receive dividends on those shares equalling the amount being
redeemed by check until such time as the check is presented to Bankers. Checks
may not be presented for cash payment at the offices of Bankers because, under
rules under the Investment Company Act of 1940 (the "1940 Act"), redemptions may
be effected only at the redemption price next determined after the redemption
request is presented to a Fund's transfer and dividend disbursing agent. This
limitation does not affect checks used for the payment of bills or cashed at
other banks.
Additional Redemption Information
Ordinarily, a Fund will make payment for all shares redeemed within one busines
day, but in no event (except as described below) will payment be made more than
seven days after receipt by the Fund of a redemption request. However, payment
may be postponed or the right of redemption (by any of the above-described
methods) suspended for more than seven days under unusual circumstances, such as
when trading is not taking place on the New York Stock Exchange. Payment of
redemption proceeds may also be delayed for a period of up to fifteen days after
purchase pending clearance of any check delivered in payment for those shares.
Each Fund imposes no charge when shares are redeemed. Each Fund reserves the
right to redeem any account involuntary upon 30 days' prior written notice if
such account falls below the minimum initial investment. Accordingly, a
shareholder making a minimum investment may not redeem any portion of his or her
investment without becoming subject to possible involuntary liquidation.
EXCHANGES
Shares of a Fund may be exchanged at net asset value for shares of the other
Fund without charge by instructions to J.C. Bradford & Co. LLC or by mail. The
value of the shares being
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exchanged must meet the minimum initial investment requirements of the Fund.
INVESTMENT PROGRAMS
Investment Objectives
The BRADFORD U.S. GOVERNMENT FUND seeks to provide as high a level of current
income as is consistent with the preservation of capital and liquidity. The
BRADFORD SHORT-TERM MUNICIPAL FUND seeks to provide as high a level of current
income exempt from federal income taxes as is consistent with the preservation
of capital and liquidity. For purposes of this Prospectus and the Statement of
Additional Information, interest which is "tax-exempt" or "exempt" from federal
income tax means interest which is excluded from gross income for federal income
tax purposes, but which may constitute an item of tax preference and which may
therefore give rise to a federal alternative minimum tax liability for
individual shareholders. The investment objectives of each Fund are fundamental
policies, which may not be changed without the approval of the shareholders of
the respective Funds.
INVESTMENT POLICIES
Each Fund invests only in U.S. dollar-denominated securities which are rated in
one of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations ("NRSROs") (or one NRSRO
if the instrument was rated by only one such organization) or, if unrated, are
of comparable quality as determined in accordance with procedures established by
the Board of Directors. The NRSROs currently rating instruments of the type one
or more of the Funds may purchase are Moody's Investors Service, Inc., Standard
& Poor's Rating Services, a division of The McGraw-Hill Companies Corporation,
Duff and Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc.
(See the Statement of Additional Information for information with respect to
rating criteria for each NRSRO.)
Investments in rated securities not rated in the highest category by at least
two NRSROs (or one NRSRO if the instrument was rated by only one such
organization), and unrated securities not determined by the Board of Directors
to be comparable to those rated in the highest category, will be limited to 5%
of a Fund's total assets, with the investment in any such issuer being limited
to not more than the greater of 1% of a Fund's total assets or $1 million. A
Fund may invest in obligations issued or guaranteed by the U.S. Government
without any such limitation.
Each Fund invests in such high quality debt obligations with relatively short
maturities. Each Fund seeks to achieve its objective by investing in different
types of securities, as described below. Unless otherwise stated, the investment
policies and restrictions set forth below and in the Statement of Additional
Information are not fundamental policies, and may be changed by the Board of
Directors, with notice to shareholders.
BRADFORD U.S. GOVERNMENT FUND
The BRADFORD U.S. GOVERNMENT FUND endeavors to achieve its objective by
investing at least 65% of its total assets in short-term "U.S. Government
Obligations." U.S. Government Obligations consist of marketable securities and
instruments issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities. Direct obligations are issued by the U.S. Treasury and
include bills, certificates of indebtedness, notes and bonds. Obligations of
U.S. Government agencies and instrumentalities ("Agencies") are issued by
government-sponsored agencies and enterprises acting under authority of
Congress.
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Although obligations of federal agencies and instrumentalities are not debts of
the U.S. Treasury, in some cases payment of interest and principal on such
obligations is guaranteed by the U.S. Government, e.g., obligations of the
Federal Housing Administration, the Export-Import Bank of the United States, the
Small Business Administration, the Government National Mortgage Association, the
General Services Administration and the Maritime Administration; in other cases
payment of interest and principal is not guaranteed, e.g., obligations of the
Federal Home Loan Bank System and the Federal Farm Credit Bank. The Bradford
U.S. Government Fund will invest in Agencies which are not guaranteed or backed
by the full faith and credit of the U.S. Government only when the Fund's Board
of Directors is satisfied that the credit risk with respect to a particular
agency or instrumentality is minimal.
BRADFORD SHORT-TERM MUNICIPAL FUND
The BRADFORD SHORT-TERM MUNICIPAL FUND seeks to provide as high a level of
current income that is exempt from federal income taxes as is consistent with
the preservation of capital and liquidity by investing at least 80% of its net
assets in a diversified portfolio of high quality, short-term municipal
obligations ("Municipal Securities").
The BRADFORD SHORT-TERM MUNICIPAL FUND will invest in Municipal Securities which
include debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities, the refunding
of outstanding obligations, the obtaining of funds for general operating
expenses and lending such funds to other public institutions and facilities. In
addition, certain types of private activity bonds or industrial development
bonds are issued by or on behalf of public authorities to obtain funds to
provide for the construction, equipment, repair or improvement of privately
operated facilities. Such obligations are considered to be Municipal Securities
provided that the interest paid thereon generally qualifies as exempt from
federal income tax in the opinion of bond counsel. However, interest on
Municipal Securities may give rise to federal alternative minimum tax liability
and may have other collateral federal income tax consequences.
The BRADFORD SHORT-TERM MUNICIPAL FUND also may purchase any Municipal Security
which depends on the credit of the U.S. Government and may invest in Municipal
Securities which are not rated if, in the opinion of the Company's investment
advisor, and in accordance with procedures established by the Board of
Directors, such securities possess creditworthiness comparable to those rated
obligations in which the BRADFORD SHORT-TERM MUNICIPAL FUND may invest. The
BRADFORD SHORT-TERM MUNICIPAL FUND may, from time to time, on a temporary or
defensive basis, invest in short-term, high quality U.S. Government Obligations,
Money Market Obligations and repurchase agreements. Income from any such
temporary investments would be taxable to shareholders as ordinary income. It is
the present policy of the BRADFORD SHORT-TERM MUNICIPAL FUND to invest only in
securities the interest on which is tax-exempt. The Fund will endeavor to be
invested at all times in Municipal Securities. It is a fundamental policy of the
BRADFORD SHORT-TERM MUNICIPAL FUND that its assets will be invested so that at
least 80% of its income will be exempt from federal income taxes. The BRADFORD
SHORT-TERM MUNICIPAL FUND may from time to time hold cash reserves.
BOTH FUNDS
The securities in which the Funds invest may not yield as high a level of
current income as
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longer term or lower grade securities, which generally have less liquidity and
greater fluctuation in value. There can be no assurance that the Funds will
achieve their objectives. The values of the securities in which the Funds invest
fluctuate based upon interest rates, the financial stability of the issuers and
market factors.
The Company may enter into the following arrangements with respect to the two
Funds. Repurchase Agreements: under a repurchase agreement, the purchaser (for
example, one of the Funds) acquires ownership of an obligation and the seller
agrees, at the time of the sale, to repurchase the obligation at a mutually
agreed upon time and price, thereby determining the yield during the purchaser's
holding period. This arrangement results in a fixed rate of return insulated
from market fluctuations during such period. Although the underlying collateral
for repurchase agreements may have maturities exceeding one year, a Fund will
not enter into a repurchase agreement if as a result of such investment more
than 10% of such Fund's net assets would be invested in illiquid securities,
including repurchase agreements which expire in more than seven days. A Fund
may, however, enter into "continuing contract" or "open" repurchase agreements
under which the seller is under a continuing obligation to repurchase the
underlying obligation from that Fund on demand and the effective interest rate
is negotiated on a daily basis.
In general, a Fund will enter into repurchase agreements only with domestic
banks with total assets of at least $1.5 billion or with primary dealers in U.S.
Government securities. However, the total assets of a bank will not be the sole
factor determining the Fund's investment decisions, and the Fund may enter into
repurchase agreements with other institutions which the Board of Directors
believes present minimal credit risk. Nevertheless, if the seller of a
repurchase agreement fails to repurchase the obligation in accordance with the
terms of the agreement, the Fund which entered into the repurchase agreement may
incur a loss to the extent that the proceeds it realized on the sale of the
underlying obligation are less than the repurchase price. Repurchase agreements
may be considered loans to the seller of the underlying security.
Securities purchased pursuant to a repurchase agreement are held by the Fund's
Custodian and (i) are recorded in the name of the Fund with the Federal Reserve
Book-Entry System, or (ii) the Fund receives daily written confirmation of each
purchase of a security and a receipt from the Custodian. The Funds purchase
securities subject to a repurchase agreement only when the purchase price of the
security acquired is equal to or less than its market price at the time of
purchase.
A Fund may also enter into reverse repurchase agreements which involve the sale
by a Fund of a portfolio security at an agreed upon price, date and interest
payment. A Fund will enter into reverse repurchase agreements for temporary or
defensive purposes to facilitate the orderly sale of portfolio securities to
accommodate abnormally heavy redemption requests should they occur, or in some
cases as a technique to enhance income. A Fund will use reverse repurchase
agreements when the interest income to be earned from the investment of the
proceeds of the transaction is greater than the interest expense of the reverse
repurchase transaction. A Fund will enter into reverse repurchase agreements
only in amounts up to 10% of the value of its total assets at the time of
entering into such agreements. Reverse repurchase agreements involve the risk
that the market value of securities retained by a Fund in lieu of liquidation
may decline below the
9
<PAGE>
repurchase price of the securities sold by the Fund which it is obligated to
repurchase. This risk, if encountered, could cause a reduction in the net asset
value of a Fund's shares. Reverse repurchase agreements are considered to be
borrowings under the 1940 Act. See "Investment Restrictions" in the Statement of
Additional Information for percentage limitations on borrowings.
Delayed delivery agreements are commitments by a Fund to dealers or issuers to
acquire securities beyond the customary same-day settlement for money market
instruments. These commitments fix the payment price and interest rate to be
received on the investment. Delayed delivery agreements will not be used as a
speculative or leverage technique. Rather, from time to time, the Funds'
investment advisor can anticipate that cash for investment purposes will result
from scheduled maturities of existing portfolio instruments or from net sales of
shares of a Fund; therefore, to assure that a Fund will be as fully invested as
possible in instruments meeting that Fund's investment objective, a Fund may
enter into delayed delivery agreements, but only to the extent of anticipated
funds available for investment during a period of not more than five business
days.
Money Market Obligations and Municipal Securities are sometimes offered on a
"when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such Money Market Instruments or
Municipal Securities with the intention of actually acquiring such securities,
but a Fund may sell these securities before the settlement date if it is deemed
advisable.
If a Fund enters into a delayed delivery agreement or purchases a when-issued
security, that Fund will direct the Company's custodian bank to place cash or
other high grade securities (including Money Market Obligations and Municipal
Securities) in a segregated account of such Fund in an amount equal to its
delayed delivery agreements or when-issued commitments. If the market value of
such securities declines, additional cash or securities will be placed in the
account on a daily basis so that the market value of the account will equal the
amount of such Fund's delayed delivery agreements and when-issued commitments.
To the extent that funds are in a segregated account, they will not be available
for new investment or to meet redemptions. Investment in securities on a
when-issued basis and use of delayed delivery agreements may increase a Fund's
exposure to market fluctuation; may increase the possibility that the BRADFORD
SHORT-TERM MUNICIPAL FUND will incur a short-term gain subject to federal
taxation; or may increase the possibility that a Fund will incur a short-term
loss, if the Fund must engage in portfolio transactions in order to honor a
when-issued commitment or accept delivery of a security under a delayed delivery
agreement. The Funds will employ techniques designed to minimize these risks.
No additional delayed delivery agreements or when-issued commitments will be
made if more than 25% of a Fund's net assets would become so committed. The
Funds will enter into when-issued and delayed delivery transactions only when
the time period between trade date and settlement date is at least 30 days and
not more than 120 days.
The BRADFORD SHORT-TERM MUNICIPAL FUND may attempt to improve its portfolio
liquidity by
10
<PAGE>
assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the BRADFORD SHORT-TERM
MUNICIPAL FUND, when it purchases Municipal Securities for its portfolio from a
broker, dealer or other financial institution, to sell the same principal amount
of such securities back to the seller, at the BRADFORD SHORT-TERM MUNICIPAL
FUND'S option, at a specified price. Stand-by Commitments are also sometimes
known as "puts." The BRADFORD SHORT-TERM MUNICIPAL FUND will acquire Stand-by
Commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes. The acquisition or
exercisability of a Stand-by Commitment by the BRADFORD SHORT-TERM MUNICIPAL
FUND will not affect the valuation or the average weighted maturity of its
underlying portfolio securities. See "Investment Programs and Restrictions -
Stand-by Commitments" in the Statement of Additional Information for additional
information with respect to Stand-by Commitments.
INVESTMENT RESTRICTIONS
The Funds' investment programs are subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. The most significant of these restrictions provide that
each Fund will not: (1) purchase securities of any issuer (other than
obligations of the U.S. Government, its agencies or instrumentalities,
repurchase agreements fully secured by such obligations and any Municipal
Securities guaranteed by the U.S. Government) if as a result more than 5% of a
Fund's total assets would be invested in the securities of such issuer, except
that in the case of certificates of deposit and bankers' acceptances, up to 25%
of the value of a Fund's total assets may be invested without regard to such 5%
limitation, but shall instead be subject to a 10% limitation (in each case,
subject to the provisions of Rule 2a-7 of the 1940 Act); (2) purchase any
corporate commercial instruments which would cause 25% of the value of the total
assets at the time of such purchase to be invested in securities of one or more
issuers conducting their principal business activities in the same industry; (3)
borrow money or pledge, mortgage or hypothecate its assets except for temporary
or emergency purposes (except to secure reverse repurchase agreements and then
only in an amount not exceeding 15% of the value of a Fund's total assets)
except that each Fund may purchase delayed delivery and when-issued securities
consistent with its investment objective and policies (such Fund will not make
additional investments while borrowings other than when-issued and delayed
delivery purchases are outstanding); or (4) lend money or securities except to
the extent that the investments of a Fund may be considered loans.
Additionally, the BRADFORD SHORT-TERM MUNICIPAL FUND will not: (1) purchase any
securities which would cause more than 25% of the value of the BRADFORD
SHORT-TERM MUNICIPAL FUND'S net assets at the time of such purchase to be
invested in (i) securities of one or more issuers conducting their principal
activities in the same state, (ii) securities, the interest upon which is paid
from revenues of projects with similar characteristics, or (iii) industrial
development bonds issued by issuers in the same industry; provided that there is
no limitation with respect to investments in U.S. Treasury Bills, other
obligations issued or guaranteed by the U. S. Government and its agencies or
instrumentalities, certificates of deposit of and guarantees of Municipal
Securities by domestic branches of U.S. banks; or (2) purchase or sell puts,
calls, straddles, spreads or combinations thereof, except that the BRADFORD
SHORT-TERM MUNICIPAL FUND may purchase Stand-by Commitments.
11
<PAGE>
The foregoing restrictions are matters of fundamental policy and may not be
changed without the affirmative vote of a majority of the outstanding shares of
each Fund affected by such change.
MATURITIES
Consistent with the objective of stability of principal, each Fund attempts to
maintain a constant net asset value per share of $1.00 and, to this end, values
its assets by the amortized cost method and rounds its per share net asset value
to the nearest whole cent in compliance with applicable rules and regulations.
Accordingly, the Funds invest in Money Market Obligations and Municipal
Securities having remaining maturities of thirteen months or less and maintain a
weighted average maturity for each Fund of 90 days or less. However, there can
be no assurance that a Fund's net asset value per share of $1.00 will be
maintained.
DIVIDENDS AND TAXES
Dividends
It is the policy of the Company, with respect to each Fund, to declare dividends
from the net investment income earned by each Fund daily; such dividends are
generally reinvested in additional Fund shares on the subsequent business day. A
shareholder may, by letter to the Company, elect to have dividends paid by
check. Any such election or revocation thereof must be made in writing to Reich
& Tang Funds, 600 Fifth Avenue, New York, New York 10020. Shareholders whose
dividends are being reinvested will receive a summary of their accounts at least
quarterly indicating the reinvestment of dividends. Dividends from net realized
capital gain, offset by capital loss carryovers, if any, are generally declared
and paid when realized except to the extent that a net realized capital gain is
deemed necessary to offset future capital losses.
TAXES
Each Fund is treated as a separate taxable entity for federal income tax
purposes. Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). It is each Fund's policy to distribute to shareholders all of its net
investment income and any capital gains (net of capital losses) in accordance
with the timing requirements imposed by the Code, so that each Fund will satisfy
the distribution requirement of Subchapter M and not be subject to federal
income taxes or the 4% excise tax. So long as the Funds qualify for this tax
treatment, the Funds will not be subject to federal income tax on amounts
distributed to shareholders.
If the Funds fail to satisfy any of the Code requirements for qualification as a
regulated investment company, they will be taxed at regular corporate tax rates
on all of their taxable income (including capital gains) without any deduction
for distributions to shareholders, and distributions will be taxable to
shareholders as ordinary dividends (even if derived from the Funds' net
long-term capital gains) to the extent of the Funds' current and accumulated
earnings and profits.
Shareholders of the BRADFORD SHORT-TERM MUNICIPAL FUND will not be required to
include the "exempt-interest" portion of dividends paid by the Fund in their
gross income for federal income tax purposes. However, shareholders will be
required to report the receipt of exempt-interest dividends and other tax-exempt
interest on their federal income tax returns. Moreover, exempt-interest
dividends may be subject to state income taxes, may give rise to a federal
alternative minimum tax liability, may affect the amount of social security
benefits subject to federal income tax, may affect the
12
<PAGE>
deductibility of interest on certain indebtedness of the shareholder and may
have other collateral federal income tax consequences. The Bradford Short-Term
Municipal Fund may purchase without limitation Municipal Securities the interest
on which constitutes an item of tax preference and which may therefore give rise
to a federal alternative minimum tax liability for individual shareholders. For
additional information concerning the alternative minimum tax and certain
collateral tax consequences of the receipt of exempt-interest dividends, see the
Statement of Additional Information.
The Bradford Short-Term Municipal Fund may invest in securities the interest on
which is (and the dividends paid by the Fund derived from such interest are)
subject to federal income tax, but such taxable securities will not exceed 20%
of the value of the Bradford Short-Term Municipal Fund's total assets. The
percentage of dividends which constitute exempt-interest dividends, and the
percentage thereof (if any) which constitutes an item of tax preference, will be
determined annually and will be applied uniformly to all dividends of the
Bradford Short-Term Municipal Fund declared during that year. These percentages
may differ from the actual percentages for any particular day.
Shareholders of the Bradford U.S. Government Fund will be subject to federal
income taxes and any applicable state income taxes on amounts distributed as
dividends unless such shareholders are otherwise exempt. It is not expected that
any portion of taxable dividends paid by the Funds will qualify for the federal
dividends-received deduction for corporations.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether they are received in cash or reinvested in
additional shares. In general, shareholders take distributions into account in
the year in which they are made. However, shareholders are required to treat
certain distributions made during January as having been paid and received on
December 31 of the preceding year. A statement setting forth the federal income
tax status of all distributions made (or deemed made) during the year will be
sent to shareholders promptly after the end of each year.
To avoid being subject to a 31% federal backup withholding on taxable dividends
and redemption payments, a shareholder must furnish the Company with their
taxpayer identification number and certify, under penalties of perjury, that it
is correct and that they are not subject to backup withholding for any reason.
The foregoing discussion of federal income tax consequences is based on tax laws
and regulations in effect on the date of this Prospectus, and is subject to
change by legislation or administrative action. As the foregoing discussion is
for general information only, shareholders should also review the more detailed
discussion of federal income tax considerations relevant to the Funds that is
contained in the Funds' Statement of Additional Information. Shareholders are
advised to consult with their tax advisors concerning the application of state,
local and foreign taxes on investments in the Company which may differ from the
federal income tax consequences described above.
MANAGEMENT
BOARD OF DIRECTORS
The overall management of the business and affairs of the Company is vested with
the Board of Directors. The Board of Directors approves all significant
agreements between the Funds and persons or companies furnishing services to the
Funds, including the Funds' agreements with the manager, the investment advisor,
the
13
<PAGE>
distributor, and the custodian. The day-to-day operations of each Fund are
delegated to the Company's officers, and the manager, subject always to the
objective and policies of each Fund and to the general supervision of the
Company's Board of Directors. The manager also furnishes or procures on behalf
of the Company at the manager's expense all services necessary for the proper
conduct of each Fund's business. Some of the Company's officers and directors
are officers or employees of the manager. A majority of the members of the Board
of Directors of the Company have no affiliation with the manager.
MANAGER AND INVESTMENT ADVISOR
Reich & Tang Asset Management L.P., a Delaware limited partnership, with its
principal offices at 600 Fifth Avenue, New York, New York 10020, serves as the
manager and investment advisor of the Company and its three Funds pursuant to
agreements with the Funds dated August 30, 1996 (the "Management/Investment
Advisory Agreements"). Under the Management/Investment Advisory Agreements,
Reich & Tang Asset Management L.P. (the "Manager") provides, either directly or
indirectly through contracts with others, all services required for the
management of the Company. The Manager bears all ordinary operating expenses
associated with the Company's operation except: (a) the fees of the Directors
who are not "interested persons" of the Company, as defined by the 1940 Act, and
the travel and related expenses of the Directors incident to their attending
shareholders', directors' and committee meetings; (b) interest, taxes and
brokerage commissions (which are expected to be insignificant); (c)
extraordinary expenses, if any, including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto; (d)
shareholder service or distribution fees payable by the Company under the plans
of distribution described under the heading "Distributor" below; and (e)
membership dues of any industry association. Additionally, the Manager has
assumed all expenses associated with organizing the Company and all expenses of
registering or qualifying the Company's shares under federal and state
securities laws.
The Funds pay the Manager an annual fee, calculated daily and paid monthly, of
.80% of the first $500 million of the Company's average daily net assets, plus
.775% of the next $500 million of the Company's average daily net assets, plus
.750% of the next $500 million of the Company's average daily net assets, plus
.725% of the Company's average daily net assets in excess of $1.5 billion. The
Company's comprehensive fee is higher than most other money market mutual funds
which do not offer services that the Company offers. However, most other funds
bear expenses that are being borne for the Company by the Manager. During the
fiscal year ended March 31, 1997, the Company paid the Manager fees which
represented 0.74% of the Government Portfolio's average daily net assets and
0.76% of the Municipal Portfolio's average daily net assets, respectively, on an
annualized basis.
The Manager was at June 30, 1997 investment manager, advisor or supervisor with
respect to assets aggregating in excess of $9.3 billion. The Manager currently
acts as investment manager or administrator of fifteen other investment
companies and also advises pension trusts, profit sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the limited partnership, Reich & Tang Asset
Management L.P., the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and owner of the
remaining .5%
14
<PAGE>
interest of the Manager. Reich & Tang Asset Management L.P. succeeded NEICLP as
the Manager of the Fund.
New England Investment Companies, Inc. ("NEIC"), a Massachusetts corporation,
serves as the sole general partner of NEICLP. On August 30, 1996, The New
England Mutual Life Insurance Company ("The New England") and Metropolitan Life
Insurance Company ("MetLife") merged, with MetLife being the continuing company.
The Manager remains an indirect wholly-owned subsidiary of NEICLP, but Reich &
Tang Asset Management, Inc., its sole general partner, is now an indirect
subsidiary of MetLife. Also, MetLife New England Holdings, Inc., a wholly-owned
subsidiary of MetLife, owns approximately 48.5% of the outstanding limited
partnership interest of NEICLP and may be deemed a "controlling person" of the
Manager. Reich & Tang, Inc. owns approximately 16% of the outstanding
partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through twelve subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Fund, L.P., New England Funds Management, L.P., Reich & Tang Asset
Management L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 69 other registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Management/Investment Advisory Agreements relating to each Fund. Under the
1940 Act, such an assignment caused the automatic termination of the agreements.
On November 14, 1995, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved Management/Investment Advisory Agreements
effective August 30, 1996, which has a term which extends to June 30, 1998 and
may be continued thereafter for successive twelve-month periods beginning each
July 1, provided that such continuance is specifically approved annually by
majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by a majority of the directors who are not parties
to the Management/ Investment Advisory Agreements or interested persons of any
such party, by votes cast in person at a meeting called for the purpose of
voting on such matter.
The Management/ Investment Advisory Agreements were approved by each Fund on
March 28, 1996 and each contains the same terms and conditions governing the
Manager's investment management responsibilities as the Fund's previous
Management/ Investment Advisory Agreement with the Manager, except as to the
date of execution and termination.
Pursuant to the terms of the Management/ Investment Advisory Agreements, the
Manager manages the investments of each of the Funds, subject at all times to
the policies and control of the Company's Board of Directors. The Manager
obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the Funds. The
16
<PAGE>
Manager shall not be liable to the Funds or to their shareholders except in the
case of the Manager's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
Fee Waivers
In order to increase the yield to investors, the Manager may, from time to time,
waive or reduce its fees on assets held by each of the Funds. When instituted,
the Manager will continue these fee waivers in effect or charge reduced fees
until further notice to the Board of Directors. Fee waivers or reductions, other
than those set forth in the Management/Investment Advisory Agreements, may be
rescinded, however, at any time without further notice to investors.
Distributor
Each of the Portfolios has entered into a distribution agreement dated September
15, 1993 (the "Distribution Agreements") with Reich & Tang Distributors L.P.
(the "Distributor"), 600 Fifth Avenue, New York, New York 10020. Reich & Tang
Asset Management L.P. is the sole general partner of the Distributor. The
Distributor, which was organized on January 4, 1991, has the exclusive right to
enter into dealer agreements with securities dealers who sell shares of the
Funds and, including sales where a securities dealer automatically "sweeps" free
credit balances into a Fund at the end of each day ("sweep arrangement")
allowing the account holder to earn dividends otherwise unavailable in the
brokerage account, with financial institutions which may furnish services to
shareholders on behalf of the Company. Pursuant to plans of distribution (the
"Plans") approved by the Funds' Boards on March 5, 1997, each of the Funds may
make distribution related payments, under a sweep arrangement or otherwise, in
an amount not to exceed on an annualized basis .25% of the value of the Fund's
assets. Securities dealers and other financial institutions may receive
distribution payments directly or indirectly from the Funds for services that
may include payments for opening shareholder accounts, processing investor
purchase and redemption orders, responding to inquiries from shareholders
concerning the status of their accounts and operations of their Fund and
communications with the Company on behalf of Fund shareholders. Additionally,
the Distributor may pay for advertisements, promotional materials, sales
literature and printing and mailing of prospectuses to other than Fund
shareholders and other services to support distribution pursuant to the Plans.
The Distributor may also make payments to securities dealers, under a sweep
arrangement or otherwise, and financial institutions, such as banks, out of the
investment management fee the Manager receives from the Funds, out of its past
profits or from any other source available to the Distributor.
The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Fund to
make payments to the Distributor pursuant to the Plan will cease and the Fund
will not be required to make any payments past the date the Plan terminates.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Funds, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Funds are usually principal
transactions, the Funds incur little or no net brokerage
16
<PAGE>
commissions. Portfolio securities are normally purchased directly from the
issuer or from a market maker for the securities. The purchase price paid to
dealers serving as market makers may include a spread between the bid and asked
prices. The Funds may also purchase securities from underwriters at prices which
include a concession paid by the issuer to the underwriter.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed to be in
the best interest of shareholders of the Funds rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
YIELD INFORMATION
Each Fund will provide yield quotations based on its daily dividends. Yield is
computed in accordance with a standardized formula described in the Statement of
Additional Information and can be expected to fluctuate substantially over time.
Comparative performance information may be used from time to time in advertising
or marketing the Funds' shares, including data from industry publications.
GENERAL INFORMATION
Organization of the Company and
Description of Shares
The Company is an open-end, diversified investment company. The Company was
organized as a Massachusetts business trust on October 31, 1984, but had no
operations prior to May 9, 1985. On July 31, 1989, the Company reorganized and
became a Maryland corporation. The shares of the Company are divided into three
Portfolios, each of which represent shares of common stock of the par value of
$.001. The Cortland General Money Market Fund Portfolio's shares are classified
into three classes - the Cortland General Money Market Fund Class, the Live Oak
General Money Market Fund Class and the Pilgrim America General Money Market
Shares. The U.S. Government Fund Portfolio's shares are classified into three
classes - the U.S. Government Fund Class, the Live Oak U.S. Government Fund
Class and the Bradford U.S. Government Money Market Fund Class. The Municipal
Money Market Fund Portfolio's shares are classified into three classes - the
Municipal Money Market Fund Class, the Live Oak Municipal Money Market Fund
Class and the Bradford Short-Term Municipal Money Market Fund Class. Classes of
shares of the Company's Portfolios offered through other prospectuses have
different maximum distribution plan payments and may have different other
expenses which may affect performance. Investors may call their securities
dealer or the Company at (212) 830-5280 to obtain more information concerning
the other classes.
Shares of the Company have equal rights with respect to voting, except that the
holders of shares of a particular Portfolio or Fund will have the exclusive
right to vote on matters affecting only the rights of the holders of such
Portfolio or Fund. For example, holders of a particular Portfolio will have the
exclusive right to vote on any investment advisory agreement or investment
restriction that relates only to such Portfolio. The holders of each Fund have
distinctive rights with respect to dividends and redemptions which are more
fully described in this Prospectus and the Statement of Additional Information.
In the event of dissolution or liquidation, holders of each Fund will receive
pro rata, subject to the rights of creditors, (a) the proceeds of the sale of
the assets held in the respective portfolio to which the shares of the Fund
relate, less (b) the liabilities of the
17
<PAGE>
Company attributable to the respective portfolio or allocated between the
portfolios based on the respective liquidation value of each portfolio. There
will not normally be annual shareholders' meetings. Shareholders may remove
directors from office by a majority of votes entitled to be cast at a meeting of
shareholders. Shareholders holding 10% or more of the Company's outstanding
stock may call a special meeting of shareholders.
There are no preemptive or conversion rights (other than the exchange privileges
set forth in this Prospectus) applicable to any of the Company's shares. The
Company's shares when issued, will be fully paid, non-assessable and
transferrable. The Board of Directors may increase the number of authorized
shares or create additional series or classes of the Company shares without
shareholder approval.
LEGAL MATTERS
The law firm of Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York,
New York 10022, serves as counsel to the Company and has passed upon the
legality of the shares offered pursuant to this Prospectus.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, acts as custodian for each Portfolio's securities and cash. Reich & Tang
Services L.P., 600 Fifth Avenue, New York New York 10020, acts as transfer agent
for the Company's shares.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed to
your securities dealer or to the Company at (212) 830-5280 or toll free at (800)
433-1918.
18
<PAGE>
Table of Contents
Table of Fees and Expenses......................... 2
How to Purchase Shares............................. 3
General Information on Purchases................ 3
Purchases Through
J.C. Bradford & Co. LLC...................... 3
Purchases Pursuant to Bradford's Regular
Security Account............................ 4
Purchases Pursuant to BCM Program............... 4
Retirement Plans.................................5
Redemption Procedures...............................5
Automatic Redemption............................ 5
Redemption by Request........................... 5
Redemption by Check............................. 6
Additional Redemption Information............... 6
Exchanges....................................... 6
Investment Programs................................ 7
Investment Objectives........................... 7
Investment Policies............................. 7
Bradford U.S. Government Fund................... 7
Bradford Short-Term Municipal Fund...............8
Both Funds.......................................8
Investment Restrictions.........................11
Maturities......................................12
Dividends and Taxes................................12
Dividends.......................................12
Taxes ..........................................12
Management.........................................14
Board of Directors..............................14
Management and Investment Advisor...............14
Fee Waivers.....................................16
Distributor.....................................16
Portfolio Transactions.............................17
Yield Information..................................17
General Information................................17
Organization of the Company and
Description of Shares.......................17
Legal Matters...................................18
Custodian and Transfer Agent....................18
Shareholder Inquiries...........................18
<PAGE>
Rule 497(c)
File No. 2-94935
- --------------------------------------------------------------------------------
BRADFORD SHARES 600 Fifth Avenue
New York, NY 10020
212-830-5280
================================================================================
MARCH 16, 1998
SUPPLEMENT TO THE STATEMENT OF ADDITIONAL INFORMATION
Dated July 31, 1997
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS
JANUARY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 2)
------ ---- ----- ------
U. S. Government Agencies (78.61%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000,000 Federal Farm Credit Bank (a) 05/27/98 5.59% $ 4,999,250
9,000,000 Federal Farm Credit Bank (b) 03/03/98 5.66 9,000,000
5,000,000 Federal Home Loan Bank 02/19/98 5.66 4,986,778
5,000,000 Federal Home Loan Bank 03/10/98 5.41 4,973,150
10,000,000 Federal Home Loan Bank 04/10/98 5.35 9,901,733
5,000,000 Federal Home Loan Bank 06/12/98 5.39 4,904,667
5,650,000 Federal Home Loan Bank 06/19/98 5.42 5,659,817
5,000,000 Federal Home Loan Bank 07/13/98 5.39 4,882,604
5,000,000 Federal Home Loan Bank 10/08/98 5.45 4,819,856
5,000,000 Federal National Mortgage Association 02/27/98 5.43 4,981,250
5,000,000 Federal National Mortgage Association 03/12/98 5.41 4,971,711
5,000,000 Federal National Mortgage Association 03/13/98 5.70 4,969,558
5,000,000 Federal National Mortgage Association 04/10/98 5.41 4,950,308
5,000,000 Federal National Mortgage Association 04/15/98 5.41 4,946,650
5,000,000 Federal National Mortgage Association 05/28/98 5.38 4,915,667
5,000,000 Federal National Mortgage Association 07/09/98 5.48 4,883,776
5,000,000 Federal National Mortgage Association 07/14/98 5.43 4,881,200
10,000,000 Federal National Mortgage Association (c) 05/21/98 5.62 9,998,267
5,000,000 Federal National Mortgage Association (d) 06/19/98 5.58 4,998,893
10,000,000 Federal National Mortgage Association (e) 02/13/98 5.42 9,999,970
5,000,000 Federal National Mortgage Association 04/24/98 5.64 4,938,013
- -------------- ------------
124,650,000 Total U. S. Government Agencies 123,563,118
- -------------- ------------
<CAPTION>
Letter of Credit Commercial Paper (2.19%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,464,000 Kirksville, College of Osteopathic Medicine
LOC Student Loan Marketing Association 03/12/98 5.75% $ 3,443,268
- -------------- ------------
3,464,000 Total Letter of Credit Commercial Paper 3,443,268
- -------------- ------------
<CAPTION>
Repurchase Agreements, Overnight (19.09%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 20,000,000 Goldman Sachs Group L.P.
(Collateralized by $34,316,717 GNMA,
6.0000% to 10.500%,due 01/01/00 to 12/20/27) 02/02/98 5.64% $ 20,000,000
10,000,000 Morgan (J.P.) Securities, Inc. Farm Credit
(Collateralized by $10,132,000
Systemwide Bonds, 6.51%, due 01/07/08) 02/02/98 5.63 10,000,000
30,000,000 Total Repurchase Agreements, Overnight 30,000,000
- ------------- ------------
Total Investments (99.89%) (Cost $157,006,386+) 157,006,386
Cash and Other Assets, Net of Liabilities (0.11%) 169,072
------------
Net Assets (100.00%) $ 157,175,458
============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS (CONTINUED)
JANUARY 31, 1998
(UNAUDITED)
================================================================================
FOOTNOTES:
(a) This is a variable rate Federal Farm Credit Bank Floating Rate Note. The
interest rate is adjusted daily based upon the prime rate minus 2.96.
(b) This is a variable rate Federal Farm Credit Bank Floating Rate Note. The
interest rate changes monthly based on 3 month T-Bill BEY plus .23.
(c) This is a variable rate Federal National Mortgage Association Floating Rate
Note. The interest rate is adjusted daily based upon the prime rate minus
2.94.
(d) This is a variable rate Federal National Mortgage Association Floating Rate
Note. The interest rate is adjusted daily based upon the prime rate minus
2.98.
(e) This is a variable rate Federal National Mortgage Association Floating Rate
Note. The interest rate is adjusted monthly based on 1 month LIBOR minus
.16.
KEY:
LOC = Letter of Credit
GNMA = Government National Mortgage Association
See Notes to Financial Statements
2
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS
JANUARY 31, 1998
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Tax Exempt Investments (17.04%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,028,000 Borough of Somerville, NJ (County of Somerset) BAN 02/19/98 3.67% $ 4,028,433
900,000 City of Burlington, VT RAN 06/26/98 4.15 904,643
5,000,000 Commonwealth of Puerto Rico TRAN - Series A 07/30/98 3.46 5,024,157 MIG-1 SP-1+
1,699,000 Dansville, NY BAN 06/26/98 3.85 1,701,252
900,000 Harris County, TX Hospital District RB
AMBAC Insured 02/15/99 3.31 932,071
2,000,000 Indiana Bond Bank
Advanced Funding Project Notes - Series 1998A-2 01/20/99 3.56 2,007,460 MIG-1 SP-1+
5,000,000 Jersey City, NJ BAN 02/05/98 3.74 5,000,023 SP-1
1,460,000 King County, WA
FGIC Insured 12/01/98 3.85 1,469,938
5,000,000 New York City RAN - Series A
LOC Morgan Guar./Bay. Landesbk/Westdeutsche Landesbk/
Soc. Gen./Helba Landesbk/Nat. West 06/30/98 3.53 5,018,247 MIG-1 SP-1+
5,000,000 Ohio Housing Finance
Agency Residential Mortgage 1998 - Series A-1
GIC-Trinity Funding 03/01/99 3.80 5,000,000 A1+
3,100,000 Cook County, IL High School District #227
(Rich Township Limited Tax School Bond) 12/01/98 3.90 3,113,681
5,000,000 School District of Greenville County, SC
GO Bonds - Series 1997 03/01/98 3.72 5,003,047
1,000,000 School District of The City of Detroit State School Aid Notes
(Wayne County) 05/01/98 3.85 1,001,401 SP-1+
3,500,000 South Bend Indiana Community School Corporation TAW 12/31/98 3.96 3,504,583
7,800,000 Sun Prairie Area School District TRAN 08/24/98 3.95 7,820,838
- -------------- ------------
51,387,000 Total Other Tax Exempt Investments 51,529,774
- -------------- ------------
<CAPTION>
Other Variable Rate Demand Instruments (b) (63.22%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,455,000 Auburn, AL Non-Profit HDA (Lakeside Project)
LOC Columbus Bank & Trust Company 09/01/27 3.80% $ 5,455,000 A1
1,900,000 Brazos River Authority
(Texas Utilities Electric Proj.) - Series 1996A 03/01/20 3.80 1,900,000 VMIG-1 A1
600,000 Butler County, PA IDA
(Armco Incorporated Project) - Series 1996A
LOC Chase Manhattan Bank, N.A. 06/01/20 3.70 600,000
3,500,000 City of Deridder IDRB (Pax Inc. Project)
LOC Bank One 08/01/12 3.75 3,500,000 A1+
</TABLE>
See Notes to Financial Statements
3
<PAGE>
================================================================================
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
JANUARY 31, 1998
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,000,000 Clark County, NV IDRB
(Nevada Cogeneration Assoc. #2) - Series 1992
LOC ABN AMRO Bank N.V. 12/01/22 3.80% $ 2,000,000 VMIG-1 A1+
2,900,000 Covington, KY Industrial Building RB
(Atkins & Pierce, Inc. Project)
LOC Fifth Third Bank 04/01/05 3.55 2,900,000
5,000,000 Cuyahoga City, OH
AMBAC Insured 01/01/16 3.55 5,000,000 VMIG-1 A1+
300,000 Delaware County, PA IDA PCRB
(Philadelphia Electric Co.) - Series A
LOC Toronto-Dominion Bank 08/01/16 3.65 300,000 P1 A1+
6,450,000 Delaware EDA Delmarva Power & Light 10/01/29 3.85 6,450,000 VMIG-1 A1
8,250,000 Director, State of NV Dept Business & Industry
IDRB (Valley Joist Inc. Project) - Series A
LOC Toronto-Dominion Bank 06/01/17 3.70 8,250,000
2,000,000 Finance Authority of Maine
(William Arthur, Inc.) - Series 1997
LOC First Chicago 10/01/12 3.80 2,000,000 A1+
3,600,000 Forsyth, MT PCRB (Portland General Electric Company)
LOC Banque Nationale de Paris 12/01/16 3.75 3,600,000 VMIG-1
7,300,000 Fulco, GA HRB (Shepard Center Inc. Project)
LOC Wachovia Bank & Trust Co., N.A. 09/01/17 3.50 7,300,000
6,445,000 Fulton County, GA MHRB
Fannie Mae Collateralized 04/01/30 3.55 6,445,000 A1+
1,290,000 Fulton County, GA RDA (Darby Printing Company)
LOC Wachovia Bank & Trust Co., N.A. 04/01/11 4.05 1,290,000
2,500,000 Gulf Coast IDA Solid Waste Disposal RB
(Citgo Petroleum Corporation Project) - Series 1994
LOC Wachovia Bank & Trust Co., N.A. 04/01/26 3.85 2,500,000 VMIG-1 A1+
9,400,000 Gulf Coast IDA Solid Waste Disposal RB
(Citgo Petroleum Corporation Project) - Series 1995
LOC Nations Bank 05/01/25 3.85 9,400,000 VMIG-1
4,600,000 Hamilton HRB Health Alliance - Series A
MBIA Insured 01/01/18 3.60 4,600,000 VMIG-1 A1+
20,000,000 Harris County, TX HFC Sisters of Charity - Series C
LOC Credit Suisse First Boston 07/01/23 3.55 20,000,000 VMIG-1 A1+
1,600,000 Industrial Board of the City of Phoenix, AL
(Mead Coated Board Project A)
LOC Toronto-Dominion Bank 06/01/28 3.75 1,600,000 A1+
</TABLE>
See Notes to Financial Statements
4
<PAGE>
================================================================================
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
JANUARY 31, 1998
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,000,000 Lewisville, IDA Incorporated VR IDRB
(Benedict Optical Incorporated Project)
LOC Comerica Bank 05/01/08 3.85% $ 1,000,000
6,900,000 Marion City, WV County Commission
Solid Waste Disposal Facility RB (Granttown Project)
LOC National Westminster Bank PLC 10/01/17 3.65 6,900,000 VMIG-1 A1+
3,800,000 Matagorda County, TX NAV Distribution #1 RB
(Houston Light & Power Company)
AMBAC Insured 11/01/28 3.70 3,800,000 VMIG-1 A1+
10,000,000 Metropolitan Washington DC Airport Authority RB
LOC Union Bank of Switzerland 10/01/27 3.55 10,000,000 VMIG-1 A1+
7,000,000 New York State Dormitory Authority
(Cornell University) - Series 1990B 07/01/25 3.50 7,000,000 VMIG-1 A1+
4,960,000 New York State ERDA PCRB
(Niagara Mohawk Power Corporation) - Series 1987A
LOC Toronto-Dominion Bank 03/01/27 3.50 4,960,000
2,100,000 North Texas Higher Education Authority
Student Loan RB - Series C
AMBAC Insured 04/01/36 3.65 2,100,000 VMIG-1
2,700,000 Parish of Calcasieu IDRB
(Citgo Petroleum Corporation) - Series 1995
LOC Banque Nationale de Paris 03/01/25 3.85 2,700,000 VMIG-1
3,500,000 Peninsula Ports Authority of VA
(Zeigler Coal Project) - Series 1997
LOC Bank of America 05/01/22 3.75 3,500,000 A1+
500,000 Pennsylvania EDFA
LOC Pittsburgh National Bank 08/01/06 3.70 500,000 P1
2,200,000 Pennsylvania EDFA
LOC Pittsburgh National Bank 12/01/12 3.70 2,200,000
6,400,000 Perry County, MI PCRB
(Leaf Forest Products Incorporated) - Series 1992
LOC Wachovia Bank & Trust Co., N.A. 03/01/02 3.65 6,400,000 P1
2,000,000 Phoenix, AZ IDA MHRB (Sunset Ranch)
LOC Swiss Bank Corporation 12/01/27 3.55 2,000,000 VMIG-1
1,600,000 Portland, OR IDRB (Oregon Transfer Company)
LOC US National Bank of Oregon 11/01/01 3.98 1,600,000 A1
2,000,000 Regional Transportation District Colorado
(Transit Vehicles Project) - Series A
LOC State Street Bank & Trust Co. 12/01/17 3.55 2,000,000 A1+
</TABLE>
See Notes to Financial Statements
5
<PAGE>
================================================================================
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
JANUARY 31, 1998
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,400,000 Sabine River Authority, TX PCRB
(Texas Utilities Electric Co.) - Series A
LOC Morgan Guaranty Trust Company 04/01/30 3.75% $ 2,400,000 VMIG-1 A1+
4,700,000 Sheboygan, WI Power & Light 08/01/14 3.60 4,700,000 VMIG-1
5,000,000 South Texas Higher ED
MBIA Insured 12/01/03 3.60 5,000,000
6,700,000 State of Missouri Financial Board Infrastructure Fac. RB
Sci City Union Station - Series B
LOC Canadian Imperial Bank of Commerce 12/01/03 3.90 6,700,000 A1+
6,000,000 Sublette, WY Exxon - Series A 07/01/17 3.75 6,000,000 P1 A1+
7,000,000 Sussex County, DE IDRB
(Perdue Farms Inc. Project) - Series 1992
LOC Rabobank Nederland 04/01/12 3.75 7,000,000
2,100,000 Washington State HFC MHRB (Wadering Creek Project)
LOC Bank of America 01/01/26 3.85 2,100,000 VMIG-1
4,300,000 West Side Calhoun County, NAV District Sewer &
Solid Waste Disposal (BP Chemicals Inc.) 04/01/31 3.80 4,300,000 P1 A1+
1,250,000 York County, PA IDA Limited Obligation RB
(Metal Exchange Corporation Project)
LOC Comerica Bank 06/01/06 3.80 1,250,000
- -------------- ------------
191,200,000 Total Other Variable Rate Demand Instruments 191,200,000
- -------------- ------------
<CAPTION>
Put Bonds (c) (7.38%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,000,000 Butler County Industrial Development Authority
(Concordia Lutheran Ministries) - Series 98A
LOC PNC Bank, N.A. 02/01/99 2.32% $ 4,013,531 A1
1,780,000 City of Dayton, KY Industrial Building RB (RADAC Corporation) -
Series 1994
LOC Fifth Third Bank 04/01/98 4.00 1,780,000
2,000,000 Connecticut State Special Assessment Unemployment
Compensation Advance Fund RB - Series 93C
FGIC Insured 07/01/98 3.90 2,000,000 VMIG-1 A1+
1,000,000 Education Loans Inc.
Student Loan RB Senior Class - Series 1997 A
LOC Westdeutsche Landesbank Girozentrale 02/04/98 3.85 1,000,000
1,000,000 Education Loans Inc.
Student Loan RB Senior Class - Series 1997 A
GIC Westdeutsche Landesbank Girozentrale 05/06/98 3.70 1,000,000
6,500,000 Hartford County, MD IDRB (A.O. Smith)
LOC Bank One Milwaukee, N.A. 03/02/98 3.95 6,500,000
</TABLE>
See Notes to Financial Statements
6
<PAGE>
================================================================================
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
JANUARY 31, 1998
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Put Bonds (c) (Continued)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,000,000 Tennessee Housing Development Agency
(Home Ownership Program) 02/19/98 3.75% $ 3,000,000 VMIG-1 A1+
3,015,000 Vermont State Educational & Health Building
Finance Agency (Middlebury College) 11/01/98 3.85 3,015,000 A1+
- -------------- ------------
22,295,000 Total Put Bonds 22,308,531
- ------------- ------------
<CAPTION>
Tax Exempt Commercial Paper (7.93%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,000,000 City of Burlington, KS
LOC Deutsche Bank A.G. 02/25/98 3.75% $ 2,000,000 P1 A1+
1,000,000 City of Burlington, KS
LOC Deutsche Bank A.G. 02/25/98 3.50 1,000,000 P1 A1+
2,100,000 County & City of Denver, CO
Airport System Subordinate RB - Series 1997A
LOC Bayerische Landesbank Girozentrale 02/11/98 3.70 2,100,000
3,200,000 County & City of Denver, CO
Airport System Subordinate RB - Series 1997A
LOC Bayerische Landesbank Girozentrale 05/21/98 3.60 3,200,000 A1+
1,300,000 New York City GO 1996 - Series J-3
LOC Morgan Guaranty Trust Company 06/01/98 3.50 1,300,000 P1 A1+
2,400,000 North Carolina Municipal Power Agency - Series 1988B 02/23/98 3.80 2,400,000 A1+
3,000,000 Sarasota County, FL Public Hospital District HRB
(Sarasota Memorial Hosp.) - Series 1996
LOC Sun Trust Bank 05/06/98 3.65 3,000,000 VMIG-1
5,000,000 State of CT Special Assessment Second Injury Fund
LOC Credit Agricole/Credit Commercial de Belgique 06/16/98 3.45 5,000,000 P1 A1+
2,500,000 Venango, PA IDA Resource Recovery RB
(Scrubgrass Project) - Series 1990A
LOC National Westminster Bank PLC 05/12/98 3.60 2,500,000 P1 A1+
1,500,000 Venango, PA IDA Resource Recovery RB
(Scrubgrass Project) - Series 1990B
LOC National Westminster Bank PLC 05/12/98 3.60 1,500,000 P1 A1+
- -------------- ------------
24,000,000 Total Tax Exempt Commercial Paper 24,000,000
- -------------- ------------
<CAPTION>
Variable Rate Demand Instruments - Participations (b) (0.66%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,000,000 New Jersey State EDA IDRB
(Hartz Mountain Industries Project)
LOC Chase Manhattan Bank, N.A. 01/01/02 5.53% $ 1,000,000 P1 A1
1,000,000 New Jersey State EDA IDRB
(Hartz Mountain Industries Project)
LOC Chase Manhattan Bank, N.A. 01/01/02 5.53 1,000,000 P1 A1
- -------------- ------------
2,000,000 Total Variable Rate Demand Instruments - Participations 2,000,000
- -------------- ------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
================================================================================
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
JANUARY 31, 1998
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Variable Rate Demand Instruments - Private Placements (b) (4.66%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 9,100,000 Bastrop, TX Industrial Development Corp. VRD Industrial IDRB
(Blocrest Partners, LP Project)
LOC Union Bank of California 04/01/22 3.90% $ 9,100,000
840,000 Jefferson County, MO IDA IDRB (Holley Partnership)
LOC Chase Manhattan Bank, N.A. 12/01/04 5.53 840,000 P1 A1
587,538 New Jersey State EDA IDRB (Heary Modelle & Company)
LOC Chase Manhattan Bank, N.A. 09/01/00 5.53 587,538 P1 A1
1,400,000 Tyler House Certificate Trust
Certificates of Participation - Series 1995A
LOC PNC Bank, N.A. 08/01/25 3.80 1,400,000 VMIG-1
2,177,000 York County, PA IDA IDRB
(Manor Care of Kingston Court Incorporated)
LOC Chase Manhattan Bank, N.A. 12/01/08 5.53 2,177,000 P1 A1
- -------------- ------------
14,104,538 Total Variable Rate Demand Instruments - Private Placements 14,104,538
- -------------- ------------
Total Investments (100.89%) (Cost $305,142,843+) 305,142,843
Cash and Other Assets, Net of Liabilities (-0.89%) ( 2,703,086)
------------
Net Assets (100.00%) $302,439,757
============
+ Aggregate cost for federal income tax purposes is identical.
FOOTNOTES:
(a) Unless the variable rate demand instruments are assigned their own ratings,
the ratings noted are the highest ratings assigned for tax exempt
commercial paper. Securities that are not rated have been determined by the
Fund's Board of Directors to be of comparable quality to those rated
securities in which the Fund invests.
(b) Securities payable on demand at par including accrued interest (usually
with seven days notice) and where indicated are unconditionally secured as
to principal and interest by a bank letter of credit. The interest rates
are adjustable and are based on bank prime rates or other interest rate
adjustment indices. The rate shown is the rate in effect at the date of
this statement.
(c) Maturity dates of these securities are the next available put dates.
Interest rates adjust periodically.
<CAPTION>
<S> <C> <C> <C>
KEY:
AMBAC = American Bond Assurance Corporation IDRB = Industrial Development Revenue Bond
BAN = Bond Anticipation Note LOC = Letter of Credit
EDA = Economic Development Authority MBIA = Municipal Bond Insurance Association
ERDA = Energy Research and Development Authority MHRB = Multi-Family Housing Revenue Bond
EDFA = Economic Development Finance Authority PCRB = Pollution Control Revenue Bond
FGIC = Financial Guaranteed Insurance Company RAN = Revenue Anticipation Note
GO = General Obligation RB = Revenue Bond
HDA = Housing Development Authority RDA = Revenue Development Authority
HFC = Housing Finance Commission TAW = Tax Anticipation Warrant
HRB = Hospital Revenue Bond TRAN = Tax and Revenue Anticipation Note
IDA = Industrial Development Authority
</TABLE>
See Notes to Financial Statements
8
<PAGE>
================================================================================
CORTLAND TRUST, INC.
STATEMENTS OF ASSETS AND LIABILITIES
JANUARY 31, 1998
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
U.S. Government Municipal Money
Fund Market Fund
ASSETS:
<S> <C> <C>
Investments in securities*.................................... $ 157,006,386 $ 305,142,843
Interest receivable........................................... 370,854 1,920,578
Receivable for securities sold................................ -0- 5,014,616
----------------- ------------------
Total Assets.............................................. 157,377,240 312,078,037
<CAPTION>
LIABILITIES:
<S> <C> <C>
Due to custodian.............................................. 14,715 1,346,544
Dividends payable............................................. 60,409 71,024
Management fee payable........................................ 107,268 201,221
Payable for securities purchased.............................. -0- 8,007,460
Other accounts payable........................................ 19,390 12,031
----------------- ------------------
Total Liabilities......................................... 201,782 9,638,280
----------------- ------------------
<CAPTION>
<S> <C> <C>
NET ASSETS...................................................... $ 157,175,458 $ 302,439,757
================= ==================
<CAPTION>
<S> <C> <C>
SHARES OUTSTANDING:
Cortland Shares............................................... 44,163,306 50,015,374
Live Oak Shares............................................... 63,944,688 72,135,997
Bradford Shares............................................... 49,322,973 180,313,070
Net asset value, offering and redemption
price per share, all classes
(net assets/shares)........................................... $ 1.00 $ 1.00
================= ==================
* Including repurchase agreements amounting to $30,000,000 for the U.S.
Government Fund.
</TABLE>
See Notes to Financial Statements
9
<PAGE>
================================================================================
CORTLAND TRUST, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD APRIL 1, 1997 THROUGH JANUARY 31, 1998 *
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
U.S. Government Municipal Money
Fund Market Fund
INVESTMENT INCOME
<S> <C> <C>
Interest Income................................................ $ 9,345,122 $ 7,393,333
--------------- ----------------
Expenses:
Management fee--Note 3(a)................................... 1,291,321 1,479,670
Distribution support and services ----Note 3(c):
Cortland shares......................................... 260,004 225,623
Live Oak shares......................................... 97,912 92,037
Bradford shares......................................... 39,983 141,647
Other expenses.............................................. 24,253 7,549
--------------- ----------------
Total Expenses.......................................... 1,713,473 1,946,526
Expenses waived by
Manager and Distributor--Note 3(c)......................... ( 440,238) ( 129,744)
--------------- ----------------
Net Expenses............................................ 1,273,235 1,816,782
--------------- ----------------
Net Investment Income.......................................... 8,071,887 5,576,551
<CAPTION>
NET REALIZED GAIN
ON INVESTMENTS
<S> <C> <C>
Net realized gain on investments............................... 5,206 -0-
--------------- ------------
Increase in net assets from operations......................... $ 8,077,093 $ 5,576,551
=============== ================
* Bradford shares commenced distribution on October 1, 1997
</TABLE>
See Notes to Financial Statements
10
<PAGE>
================================================================================
CORTLAND TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS *
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
U.S. Government Municipal Money
Fund Market Fund
April 1, 1997 For the Year April 1, 1997 For the Year
to Ended to Ended
January 31, March 31, January 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operations:
Net investment income.................. $ 8,071,887 $ 10,484,601 $ 5,576,551 $ 5,897,429
Net realized gain on
investments........................ 5,206 6,270 -0- -0-
----------- ----------- ----------- -------
Increase in net assets
from operations.................... 8,077,093 10,490,871 5,576,551 5,897,429
Distributions
to shareholders from:
Net investment income:
Cortland shares....................... ( 4,656,494) ( 8,230,482) ( 2,561,747) + ( 4,436,681) +
Live Oak shares....................... ( 2,275,302) ( 2,235,131) ( 1,351,823) + ( 1,475,242) +
Bradford shares*...................... ( 757,971) -- ( 1,662,981) + --
Capital share transactions net (Note 4):
Cortland shares...................... (120,782,024) ( 90,947,715) (103,324,890) ( 63,128,999)
Live Oak shares...................... 8,726,167 7,893,226 13,335,211 9,140,492
Bradford shares*..................... 49,322,973 -- 180,313,070 --
----------- ----------- ----------- --------
Total increase (decrease).............. ( 62,345,558) (83,029,231) 90,323,391 ( 54,003,001)
Net assets:
Beginning of period.................... 219,521,016 302,550,247 212,116,366 266,119,367
----------- ----------- ----------- -----------
End of period*......................... $157,175,458 $219,521,016 $302,439,757 $212,116,336
=========== =========== =========== ===========
Undistributed net
investment income................... $ 432,120 $ 50,000 $ -0- $ -0-
+ Designated as exempt-interest dividends for regular federal income tax
purposes.
* Bradford shares commenced distribution on October 1, 1997.
</TABLE>
See Notes to Financial Statements
11
<PAGE>
================================================================================
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
Note 1-General:
Cortland Trust, Inc. (the "Company") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a no-load, diversified, open-end
management company. The Company consists of three money market funds: the
Cortland General Money Market Fund ("Cortland General Fund"), the U.S.
Government Fund, and the Municipal Money Market Fund ("Municipal Fund").
Cortland General Fund has two classes of stock authorized, Cortland shares and
Live Oak shares. Both the U.S. Government Fund and the Municipal Fund have three
classes of stock authorized, Cortland shares, Live Oak shares and Bradford
shares. The Cortland shares are subject to a service fee of .25% of its average
net assets pursuant to the Distribution Plan. The Live Oak shares are subject to
a service fee of .20% of its average net assets. The Bradford shares are subject
to a service fee of .25% of its average net assets. In all other respects, the
Cortland shares, Live Oak shares and Bradford shares represent the same interest
in the income and assets of the Fund. Each class of shares has identical voting,
dividend, liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. Distribution of Live Oak shares commenced November 16, 1995.
Bradford shares commenced distribution on October 1, 1997. The Company accounts
separately for the assets, liabilities and operations of each Fund. Each Fund's
fiscal year ends on March 31. The financial statements and notes herein relate
to the U.S. Government Fund and the Municipal Fund.
It is the Company's policy to maintain a continuous net asset value per share of
$1.00 for each Fund; the Company has adopted certain investment, portfolio
valuation and dividend and distribution policies to enable it to do so.
Note 2-Significant Accounting Policies:
(a) Valuation of investments: Investments are valued at amortized cost, which
approximates market value and has been determined by the Company's Board of
Directors to represent the fair value of each Fund's investments.
(b) Securities transactions and investment income: Securities transactions are
recorded on a trade date basis. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Interest income is
recognized on the accrual basis.
The U.S. Government Fund may enter into repurchase agreements for securities
held by the Fund with financial institutions deemed to be creditworthy by the
Fund's Advisor, subject to the seller's agreement to repurchase and the Fund's
agreement to resell such securities at a mutually agreed upon price. Securities
purchased subject to repurchase agreements are deposited with the Funds'
custodian and must have an aggregate market value greater than or equal to the
repurchase price plus accrued interest at all times. In the event that the
seller of the agreement defaults on its repurchase obligation, the Fund
maintains the right to sell the underlying securities at market value.
(c) Dividends to Shareholders: It is the policy of the Company, with respect to
each Fund, to declare dividends from the net investment income earned by each
Fund daily; such dividends are distributed to each Fund's shareholders on the
subsequent business day. Dividends from net realized capital gains, offset by
capital loss carryovers, if any, are generally declared and paid when realized.
(d) Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
(e) Federal income taxes: It is the policy of each Fund to continue to qualify
as a regulated investment company, if such qualification is in the best
interests of its shareholders by complying with the applicable sections of the
Internal Revenue Code, and to make distributions of income (including net
realized capital gains) sufficient to relieve it from all Federal income taxes.
Accordingly, no
12
<PAGE>
================================================================================
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
================================================================================
Note 2-Significant Accounting Policies: (Continued)
provision for Federal income taxes is required. At January 31, 1998, U.S.
Government Fund and Municipal Fund had unused capital loss carryforwards of
approximately $715,280 and $32,156, respectively, available for Federal income
tax purposes to be applied against future securities profit, if any. If not
applied against future securities profit, $264,039 and $451,241 will expire in
the years 2003 and 2004, respectively, for U.S. Government Fund. $16,757, $3,530
and $11,869 will expire in the years 2001, 2002 and 2003, respectively, for
Municipal Fund.
Note 3-Management Fee and Other Transactions With Affiliates:
(a) Reich & Tang Asset Management, L.P. (the "Manager") serves as the manager of
the Company and its three Funds pursuant to agreements with the Funds dated
September 14, 1993 ("Agreements"). Under the Agreements, the Manager provides
directly, or indirectly through contracts with others, all services required for
the management of the Company. The Manager bears all ordinary operating expenses
associated with the Company's operation except: (a) the fees of the directors
who are not "interested persons" of the Company, as defined by the Act, and the
travel and related expenses of the directors incident to their attending
shareholder's, director's and committee meetings, (b) interest, taxes and
brokerage commissions, (c) extraordinary expenses, (d) shareholder service or
distribution fees which together can represent up to 0.25% with respect to the
Cortland shares and Bradford shares and up to 0.20% with respect to the Live Oak
shares of the net assets of each Fund on an annualized basis, and (e) membership
dues of any industry association. Additionally, the Manager has assumed all
expenses associated with organizing the Company and all expenses of registering
or qualifying the Company's shares under Federal and state securities laws. The
Funds pay the Manager an annual fee, calculated daily and paid monthly, of .80%
of the first $500 million of the Company's average daily net assets, plus .775%
of the next $500 million of the Company's average daily net assets, plus .75% of
the next $500 million of the Company's average daily net assets, plus .725% of
the Company's average daily net assets in excess of $1.5 billion. The management
fees are allocated pro-rata to each Fund based on their average daily net
assets.
(b) Certain officers and directors of the Company are "affiliated persons", as
defined in the Act, of the Manager. Each director who is not an "affiliated
person" receives from the Company an annual fee of $5,000 for services as a
director and a fee of $1,250 for each Board of Directors' meeting attended. All
directors fees and expenses are allocated equally to each Fund.
(c) Pursuant to a Distribution Plan ("Plan") dated July 31, 1989, each Fund can
make payments of up to 0.25% per annum of its average daily net assets with
respect to Cortland shares of the Fund for assistance in distributing its
shares. The Manager and/or its affiliates have the ability to make additional
payments for distribution assistance. The Manager and/or its affiliates bear all
other expenses related to the distribution of the company's shares.
Pursuant to a Distribution Plan approved by the Company's Board on November 9,
1995, each Fund can make payments of up to 0.20% per annum of it's average daily
net assets with respect to the Live Oak shares of the Fund for assistance in
distributing its shares.
Pursuant to a Distribution Plan approved by the company's Board on March 5,
1997, each Fund can make payments of up to 0.25% per annum of it's average daily
net assets with respect to the Bradford shares of the Fund for assistance in
distributing its shares.
During the period ended January 31, 1998, the manager voluntarily waived
investment management fees of $361,000 for Cortland U.S. Government Fund.
During the period ended January 31, 1998, the Distributor waived Distribution
support and services fees of $2,154 and $1,646 for the Cortland Shares of the
Cortland U.S. Government Fund and Municipal Fund, respectively and $48,296 and
$31,778 for the Live Oak shares of the U.S. Government Fund and Municipal Fund,
respectively and $28,788 and $96,320 for the Bradford shares of Cortland
Government Fund and Municipal Fund, respectively.
13
<PAGE>
================================================================================
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
================================================================================
Note 4-Capital Share Transactions:
At January 31, 1998, 5 billion shares of $.001 par value shares of the Company
were authorized. Transactions in the shares of each Fund were all at $1.00 per
share and are summarized for the period as follows:
<TABLE>
<CAPTION>
Municipal Money
U.S. Government Fund Market Fund
April 1, 1997 For the Year April 1, 1997 For the Year
to Ended to Ended
January 31, March 31, January 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Cortland Shares
Shares sold................................. 267,058,995 482,519,139 292,097,097 636,672,511
Dividends reinvested........................ 4,663,229 8,302,991 2,564,327 4,476,740
------------ ------------- ------------- ------------
271,722,224 490,822,130 294,661,424 641,149,251
Shares redeemed............................. ( 392,504,248) ( 581,769,845) ( 397,986,314) ( 704,278,250)
------------ ------------- ------------- ------------
Net decrease................................ ( 120,782,024) ( 90,947,715) ( 103,324,890) ( 63,128,999)
============ ============= ============= ============
<S> <C> <C> <C> <C>
Live Oak Shares
Shares sold................................. 204,169,009 198,329,103 186,731,086 195,656,417
Dividends reinvested........................ 2,255,208 2,241,698 1,337,342 1,478,139
------------ ------------- ------------- ------------
206,424,217 200,570,801 188,068,428 197,134,556
Shares redeemed............................. ( 197,698,050) ( 192,677,575) ( 174,733,217) ( 187,994,064)
------------ -------------- ------------- ------------
Net increase................................ 8,726,167 7,893,226 13,335,211 9,140,492
============ ============= ============= ============
<S> <C> <C> <C> <C>
Bradford Shares
Shares sold................................. 104,107,907 400,991,415
Dividends reinvested........................ 738,753 1,620,426
------------ -------------
104,846,660 402,611,841
Shares redeemed............................. ( 55,523,687) ( 222,298,771)
------------ -------------
Net increase................................ 49,322,973 180,313,070
============ =============
The components of net assets at January 31, are as follows:
Municipal Money
U.S. Government Fund Market Fund
January 31, 1998 January 31, 1998
------------------ ---------------
<S> <C> <C> <C>
Paid-in capital............................. $ 157,430,967 $ 302,464,441
Accumulated net realized losses............. ( 687,629) ( 24,684)
Undistributed net
investment income........................... 432,120 -0-
------------- --------------
Total net assets............................ $ 157,175,458 $ 302,439,757
============= =============
</TABLE>
Note 5- FINANCIAL HIGHLIGHTS
Reference is made to the Supplement to the Prospectus dated March 16, 1998.
14
<PAGE>
- --------------------------------------------------------------------------------
BRADFORD 600 Fifth Avenue, New York, NY 10020
SHARES (212) 830-5280
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
July 31, 1997
Relating to the Bradford Shares Prospectus
dated July 31, 1997
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with a Prospectus which may be obtained from your securities
dealer or by writing to Reich & Tang Distributors L.P., 600 Fifth Avenue, New
York, New York 10020 or toll free at (800) 433-1918.
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Introduction.........................................2 Qualification as a Regulated
General Information about the Company................2 Investment Company..........................12
The Company and Its Shares........................2 Excise Tax on Regulated
Directors and Officers............................3 Investment Companies........................13
Compensation Table................................4 Portfolio Distributions........................13
Manager and Investment Advisor.......................5 Sale or Redemption of Portfolio Shares.........15
Expenses.............................................7 Foreign Shareholders.............................15
Distributor and Plans of Distribution................8 Effect of Future Legislation and
Custodian........................................10 Local Tax Considerations....................15
Transfer Agent...................................10 Yield Information.................................15
Sub-Accounting...................................10 Investment Programs and Restrictions..............16
Principal Holders of Securities..................10 Investment Programs............................16
Reports..........................................10 When-Issued Securities.........................18
Share Purchases and Redemptions.....................10 Stand-by Commitments...........................19
Purchases and Redemptions........................10 Municipal Participations.......................20
Net Asset Value Determination....................11 Investment Restrictions........................20
Dividends and Tax Matters...........................11 Portfolio Transactions............................21
Dividends........................................11 Investment Ratings................................22
Tax Matters......................................12
</TABLE>
<PAGE>
INTRODUCTION
The Company, Cortland Trust, Inc., is a money market mutual fund. The rules and
regulations of the United States Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors certain information
concerning the activities of the company being considered for investment. This
information is included in a Prospectus dated July 31, 1997, relating to two of
the Company's three money market portfolios, which may be obtained without
charge from Reich & Tang Distributors L.P. (the "Distributor"). Investors may
also contact securities dealers authorized by the Distributor to distribute the
Company's shares in order to obtain a Prospectus. Some of the information
required to be in this Statement of Additional Information is also included in
the current Prospectus of the Company; and, in order to avoid repetition,
reference will be made to sections of the Prospectus. Additionally, the
Prospectus and this Statement of Additional Information omit certain information
contained in the registration statement filed with the SEC. Copies of the
registration statement, including items omitted from the Prospectus and this
Statement of Additional Information, may be obtained from the SEC by paying the
charges prescribed under its rules and regulations.
Incorporated herein by reference is the Company's statement of additional
information dated August 1, 1996 contained in Post-Effective Amendment No. 24 to
the Company's Registration Statement on Form N-1A (File Nos. 2-94935 and
811-4179) filed with the SEC on July 28, 1996. The Company's most recent
prospectus is available upon request and without charge by writing or calling
the Company at 600 Fifth Avenue, New York, New York 10020 (212) 830-5280.
GENERAL INFORMATION ABOUT THE COMPANY
The Company and Its Shares
The Company is a no-load, open-end diversified investment company. The Company
was initially organized as a Massachusetts business trust pursuant to an
Agreement and Declaration of Trust dated October 31, 1984, but had no operations
prior to May 9, 1985. On July 31, 1989, the Company was reorganized from a
Massachusetts business trust into a Maryland corporation, pursuant to an
Agreement and Plan of Reorganization approved by the shareholders on July 31,
1989. The shares of the Company are divided into three portfolios constituting
separate portfolios of investments, with various investment objectives and
policies (the "Portfolios") and, in turn, two of the Company's Portfolios are
divided into classes (each such class is referred to herein as a "Fund" and
collectively as the "Funds"):
Bradford U.S. Government Money Market Fund
Bradford Short-Term Municipal Money Market Fund
Each Portfolio issues shares of common stock in the Company. Shares of the
Company have equal rights with respect to voting, except that the holders of
shares of a particular Portfolio will have the exclusive right to vote on
matters affecting only the rights of the holders of such Portfolio. Each share
of a Portfolio bears equally the expenses of such Portfolio.
As used in the Prospectus, the term "majority of the outstanding shares" of the
Company or of a particular Portfolio means, respectively, the vote of the lesser
of (i) 67% or more of the shares of the Company or such Portfolio present at a
meeting, if the holders of more than 50% of the outstanding shares of the
Company or such Portfolio are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Company or such Portfolio.
Shareholders of the Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of the Company
voting together for the election of directors may elect all of the members of
the Board of Directors. In such event, the remaining holders cannot elect any
members of the Board of Directors.
The Board of Directors may classify or reclassify any unissued shares to create
a new class or classes in addition to those already authorized by setting or
changing in any one or more respects, from time to time, prior to the issuance
of such shares, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption, of such shares. Any such classification or
reclassification will comply with the provisions of the Investment Company Act
of 1940, as amended (the "1940 Act").
The Articles of Incorporation, as supplemented, permit the Directors to issue
the following number of full and fractional shares, par value $.001, of the
Portfolios: 2,000,000,000 shares of the Cortland General Money Market Fund (of
which 100,000,000 shares are classified as the Pilgrim America Shares and
400,000,000 shares are classified as Live Oak General Money Market Fund Shares);
1,000,000,000 shares of the U.S. Government Fund (of which 100,000,000 shares
are classified as Live Oak U.S. Government Fund Shares and 400,000,000 shares
are classified as Bradford U.S. Government Money Market Fund Shares); and
1,000,000,000 shares of the Municipal Money Market Fund (of which 100,000,000
shares are classified as Live Oak Municipal Money Market Fund Shares and
400,000,000 shares are classified as Bradford Short-Term Municipal Money Market
Fund Shares). Each Fund share is entitled to participate pro rata in the
dividends and distributions from that Fund. Additional information concerning
the rights of share ownership is set forth in each Prospectus.
2
<PAGE>
The assets received by the Company for the issue or sale of shares of each
Portfolio and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to that Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio are segregated and are charged with the expenses with respect to
that Portfolio and with a share of the general expenses of the Company as
described below under "Expenses". While the expenses of the Company are
allocated to the separate books of account of each Portfolio, certain expenses
may be legally chargeable against the assets of all three Portfolios. Also,
certain expenses may be allocated to a particular class of a Portfolio. See
"Expenses".
The Articles of Incorporation provide that to the fullest extent that
limitations on the liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the Company shall
have any liability to the Company or to its shareholders for damages.
The Articles of Incorporation further provide that the Company shall indemnify
and advance expenses to its currently acting and its former directors to the
fullest extent that indemnification of directors is permitted by the Maryland
General Corporation Law; that the Company shall indemnify and advance expenses
to its officers to the same extent as its directors and to such further extent
as is consistent with law and that the Board of Directors may through By-law,
resolution or agreement make further provisions for indemnification of
directors, officers, employees and agents to the fullest extent permitted by the
Maryland General Corporation Law. However, nothing in the Articles of
Incorporation protects any director or officer of the Company against any
liability to the Company or to its shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
As described in each Prospectus, the Company will not normally hold annual
shareholders' meetings. Under Maryland law and the Company's By-laws, an annual
meeting is not required to be held in any year in which the election of
directors is not required to be acted upon under the 1940 Act. At such time as
less than a majority of the directors have been elected by the shareholders, the
directors then in office will call a shareholders' meeting for the election of
directors.
Except as otherwise disclosed in each Prospectus and in this Statement of
Additional Information, the directors shall continue to hold office and may
appoint their successors.
Directors and Officers
The directors and executive officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
noted, the address of each director and officer is 600 Fifth Avenue, New York,
New York 10020.
Steven W. Duff, 43 - President and Director of the Company, is President of the
Mutual Funds Division of the Manager since September 1994. Mr. Duff was formerly
Director of Mutual Fund Administration at NationsBank which he was associated
with from June 1981 to August 1994. Mr. Duff is President and a Director of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Michigan Daily Tax Free Income
Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily Tax
Free Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc. and
Short Term Income Fund, Inc., President and a Trustee of Florida Daily Municipal
Income Fund, Institutional Daily Income Fund, Pennsylvania Daily Municipal
Income Fund, Executive Vice President of Reich & Tang Equity Fund, Inc., and
President and Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.
Owen Daly II, 72 - Chairman and Director of the Company, Six Blythewood Road,
Baltimore, Maryland 21210. Director, CF&I Steel Corporation and Director/Trustee
of the AIM Group of Mutual Funds, formerly Chairman of the Board of the
Equitable Bancorporation.
Albert R. Dowden, 55 - Director of the Company, and of Volvo North America
Corporation, 535 Madison Avenue, New York, NY 10022. President of Volvo North
America Corporation.
David C. Melnicoff, 77 - Director of the Company, 1919 Chestnut Street,
Philadelphia, Pennsylvania 19103. President, Samuel S. Fels Fund and Lecturer in
Finance, Temple University. Formerly Executive Vice President, Investment
Division, Philadelphia Savings Fund Society. Prior thereto, Managing Director
for Operations and Supervision of the Board of Governors of the Federal Reserve
System.
James L. Schultz, 60 - Director of the Company, Cherrington Corporate Center,
Bldg. One, 1700 Beaver Grade Road, Coraopolis, Pennsylvania 15108. President,
Treasurer and Director of Computer Research, Inc.
Richard De Sanctis, 40 - Vice President and Treasurer of the Company, is Vice
President and Treasurer of the Manager since September 1993. Mr. De Sanctis was
formerly Controller of Reich & Tang, Inc. from January 1991 to September 1993
and Treasurer of California Daily Tax Free Income Fund, Inc., Connecticut Daily
Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund,
Inc., Florida Daily Municipal Income Fund, Institutional Daily Income Fund,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., New
3
<PAGE>
York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
Ronda Feldman, 51 - Vice President of the Company, is Vice President of Reich &
Tang Services L.P. since March 1992. Ms. Feldman was formerly Director of Client
Relations, Supervised Service Company from 1987 to 1992.
Molly Flewharty, 46 - Vice President of the Company, is Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, Inc., Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
Dana E. Messina, 40 - Vice President of the Company, is Executive Vice President
of the Mutual Funds Division of the Manager since January 1995 and was Vice
President from September 1993 to January 1995. Ms. Messina was formerly Vice
President of Reich & Tang, Inc. which she was associated with from December 1980
to September 1993. Ms. Messina is also Vice President of California Daily Tax
Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax
Free Income Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income
Fund, Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund,
Inc., New York Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., and Tax Exempt Proceeds Fund, Inc.
Ruben Torres, 48 - Vice President of the Company, Vice President of Operations
of Reich & Tang Services L.P. since January 1991. Mr. Torres was formerly Vice
President and Assistant Treasurer of Cortland Financial Group, Inc.
Bernadette N. Finn, 49 - Secretary of the Company, is Vice President of the
Reich & Tang Mutual Funds Division of the Manager since September 1993. Ms. Finn
was formerly Vice President and Assistant Secretary of Reich & Tang, Inc. which
she was associated with from September 1970 to September 1993. Ms. Finn is also
Secretary of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Florida Daily
Municipal Income Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey
Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc.,
North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal
Income Fund and Tax Exempt Proceeds Fund, Inc.; Vice President and Secretary of
Delafield Fund, Inc., Institutional Daily Income Fund, Reich & Tang Equity Fund,
Inc. and Short Term Income Fund, Inc.
Each director who is not an "interested person" receives an annual fee from the
Company of $10,000 for his services as a director and a fee of $1,250 for each
Board meeting attended, and all directors are reimbursed by the Company for
expenses incurred in connection with attendance at meetings of the Board of
Directors.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Compensation Table
(1) (2) (3) (4) (5)
Name of Person, Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation from
Position from Registrant for Benefits Accrued as Benefits upon Fund and Fund Complex
Fiscal Year Part of Fund Expenses Retirement Paid to Directors*
Owen Daly II, $15,000 0 0 $15,000 (1 Fund)
Director
Albert R. Dowden, $15,000 0 0 $15,000 (1 Fund)
Director
David C. Melnicoff, $15,000 0 0 $15,000 (1 Fund)
Director
James L. Schultz $15,000 0 0 $15,000 (1 Fund)
Director
* The total compensation paid to such persons by the Fund and Fund Complex
for the fiscal year ending March 31, 1997 and, with respect to certain of
the funds in the Fund Complex, estimated to be paid during the fiscal year
ending March 31, 1997. The parenthetical number represents the number of
investment companies (including the Fund) from which such person receives
compensation that are considered part of the same Fund complex as the
Fund, because, among other things, they have a common investment advisor.
</TABLE>
MANAGER AND INVESTMENT ADVISOR
4
<PAGE>
Manager and Investment Advisor
Reich & Tang Asset Management L.P., a Delaware limited partnership, with its
principal offices at 600 Fifth Avenue, New York, New York 10020, serves as the
manager and investment advisor of the Company and its three Funds pursuant to
agreements with the Funds dated August 30, 1996 (the "Management/Investment
Advisory Agreements"). Under the Management/Investment Advisory Agreements,
Reich & Tang Asset Management L.P. (the "Manager") provides, either directly or
indirectly through contracts with others, all services required for the
management of the Company. The Manager bears all ordinary operating expenses
associated with the Company's operation except: (a) the fees of the Directors
who are not "interested persons" of the Company, as defined by the 1940 Act, and
the travel and related expenses of the Directors incident to their attending
shareholders', directors' and committee meetings; (b) interest, taxes and
brokerage commissions (which are expected to be insignificant); (c)
extraordinary expenses, if any, including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto; (d)
shareholder service or distribution fees payable by the Company under the plans
of distribution described under the heading "Distributor" below; and (e)
membership dues of any industry association. Additionally, the Manager has
assumed all expenses associated with organizing the Company and all expenses of
registering or qualifying the Company's shares under federal and state
securities laws.
The Manager was at June 30, 1997 investment manager, advisor or supervisor with
respect to assets aggregating in excess of $9.3 billion. The Manager currently
acts as investment manager or administrator of fifteen other investment
companies and also advises pension trusts, profit sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the limited partnership, Reich & Tang Asset
Management L.P., the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and owner of the
remaining .5% interest of the Manager. Reich & Tang Asset Management L.P.
succeeded NEICLP as the Manager of the Fund.
New England Investment Companies, Inc. ("NEIC"), a Massachusetts corporation,
serves as the sole general partner of NEICLP. On August 30, 1996, The New
England Mutual Life Insurance Company ("The New England") and Metropolitan Life
Insurance Company ("MetLife") merged, with MetLife being the continuing company.
The Manager remains an indirect wholly-owned subsidiary of NEICLP, but Reich &
Tang Asset Management, Inc., its sole general partner, is now an indirect
subsidiary of MetLife. Also, MetLife New England Holdings, Inc., a wholly-owned
subsidiary of MetLife, owns approximately 48.5% of the outstanding limited
partnership interest of NEICLP and may be deemed a "controlling person" of the
Manager. Reich & Tang, Inc. owns approximately 16% of the outstanding
partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through twelve subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Fund, L.P., New England Funds Management, L.P., Reich & Tang Asset
Management L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 69 other registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Management/Investment Advisory Agreements relating to each Fund. Under the
1940 Act, such an assignment caused the automatic termination of the agreements.
On November 14, 1995, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved Management/Investment Advisory Agreements
effective August 30, 1996, which has a term which extends to June 30, 1998 and
may be continued thereafter for successive twelve-month periods beginning each
July 1, provided that such continuance is specifically approved annually by
majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by a majority of the directors who are not parties
to the Management/ Investment Advisory Agreements or interested persons of any
such party, by votes cast in person at a meeting called for the purpose of
voting on such matter.
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The Management/ Investment Advisory Agreements were approved by each Fund on
March 28, 1996 and each contains the same terms and conditions governing the
Manager's investment management responsibilities as the Fund's previous
Management/ Investment Advisory Agreement with the Manager, except as to the
date of execution and termination.
Pursuant to the terms of the Management/ Investment Advisory Agreements, the
Manager manages the investments of each of the Funds, subject at all times to
the policies and control of the Company's Board of Directors. The Manager
obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the Funds. The Manager shall not
be liable to the Funds or to their shareholders except in the case of the
Manager's willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.
Under the Management/Investment Advisory Agreements, the Manager: (a) supervises
and manages all aspects of the Company's operations and the operations of each
of the Company's three Portfolios; (b) furnishes the Company with such office
space, heat, light, utilities, equipment and personnel as may be necessary for
the proper operation of the Portfolios and the Company's principal executive
office; (c) monitors the performance by all other persons furnishing services to
the Company on behalf of each Portfolio and the shareholders thereof and
periodically reports on such performance to the Board of Directors; (d)
investigates, selects and conducts relationships on behalf of the Company with
custodians, depositories, accountants, attorneys, underwriters, brokers and
dealers, insurers, banks, printers and other service providers and entities
performing services to the Portfolios and their shareholders; (e) furnishes the
Portfolios with all necessary accounting services; and (f) reviews and
supervises the preparation of all financial, tax and other reports and
regulatory filings. The expenses of furnishing the foregoing are borne by the
Manager. See "Expenses" below.
In consideration of the services to be provided by the Manager and the expenses
to be borne by the Manager under the Management/Investment Advisory Agreements,
the Manager receives annual fees from each of the Portfolios, calculated daily
and paid monthly, of 0.800% of the first $500 million of the Company's average
daily net assets, 0.775% of the average daily net assets of the Company in
excess of $500 million but less than $1 billion, 0.750% of the average daily net
assets of the Company in excess of $1 billion but less than $1.5 billion, plus
0.725% of the Company's average daily net assets in excess of $1.5 billion. The
Company's comprehensive fee is higher than most other money market mutual funds
which do not offer services that the Company offers. However, most other funds
bear certain expenses that are borne by the Manager. During the fiscal years
ended March 31, 1995, March 31, 1996 and March 31, 1997 the Company paid to the
Manager the management fees set forth in the table below:
Fiscal Year Management Fees
1995 Payable Waived Paid
---- ------- ------ ----
Cortland General $7,188,114 $124,695 $7,063,419
U.S. Government 1,704,092 17,8740 1,686,218
Municipal 1,755,183 0 1,755,183
1996
----
Cortland General $9,878,992 $0 $9,878,992
U.S. Government 1,964,097 0 1,964,097
Municipal 1,981,507 0 1,981,507
1997
----
Cortland General $10,885,158 $0 $10,885,1582
U.S. Government 1,851,957 50,000 1,801,957
Municipal 1,698,486 0 1,698,486
The Management/Investment Advisory Agreements were approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the 1940 Act), of the Portfolios or the Manager, effective August 30,
1996 for a two-year period. The new Management/Investment Advisory Agreements
will continue year to year thereafter if they are specifically approved at least
annually by the Board of Directors and by the affirmative vote of a majority of
the directors who are not parties to such Management/Investment Advisory
Agreements or "interested persons" of any such party by votes cast in person at
a meeting called for such purpose. The Portfolios or the Manager may terminate
the Management/Investment Advisory Agreements on 60 days' written notice without
penalty. Each Management/Investment Advisory Agreement terminates automatically
in the event of its "assignment," as defined in the 1940 Act. The Manager shall
not be liable to the Portfolios or to their shareholders for any act or omission
by the Manager or for any loss sustained by a Fund or its shareholders except in
the case of the Manager's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Company's (Portfolios') right to use the
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name "Cortland" in its name in any form or combination may terminate upon
termination of the Manager as the Company's (Portfolios') investment manager.
Pursuant to the terms of the Management/Investment Advisory Agreements, the
Manager: (a) provides the Company with certain executive, administrative and
clerical services as are deemed advisable by the Board of Directors; (b)
arranges, but does not pay for, the periodic updating of prospectuses and
statements of additional information and supplements thereto, proxy materials,
tax returns, reports to each Portfolio's shareholders and reports to and filings
with the SEC and state Blue Sky authorities; (c) provides the Board of Directors
on a regular basis with financial reports and analyses of the Portfolios'
operations and the operation of comparable investment companies; (d) obtains and
evaluates pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or any of the Portfolios and whether concerning
the individual issuers whose securities are included in the portfolios of the
Company's three Portfolios; (e) determines which issuers and securities shall be
represented in the Portfolios' portfolios and regularly reports thereon to the
Company's Board of Directors; (f) formulates and implements continuing programs
for the purchases and sales of securities for the Portfolios; and (g) takes, on
behalf of the Portfolios, all actions which appear to be necessary to carry into
effect such purchase and sale programs, including the placing of orders for the
purchase and sale of portfolio securities. Any investment program undertaken by
the Manager will at all times be subject to the policies and control of the
Board of Directors. The Manager shall not be liable to the Portfolios or to
their shareholders for any act or omission by the Manager or for any loss
sustained by a Portfolio or its shareholders except in the case of the Manager's
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
EXPENSES
Pursuant to the Management/Investment Advisory Agreements, the Manager
furnishes, without cost to the Company, the services of the President, Secretary
and one or more Vice Presidents of the Company and such other personnel as are
required for the proper conduct of the Portfolios' affairs and to carry out
their obligations under the Management/Investment Advisory Agreements. Pursuant
to the Management/Investment Advisory Agreements, the Manager maintains, at its
expense and without cost to the Portfolios, a trading function in order to carry
out its obligations to place orders for the purchase and sale of portfolio
securities for the Portfolios. The Manager, on behalf of its affiliate, Reich &
Tang Distributors L.P. (the "Distributor"), pays out of the management fees from
each of the Funds and payments under a Plan of Distribution (see "Distributor
and Plans of Distribution") the expenses of printing and distributing
prospectuses and statements of additional information and any other promotional
or sales literature used by the Distributor or furnished by the Distributor to
purchasers or dealers in connection with the public offering of the Portfolios'
shares, the expenses of advertising in connection with such public offering and
all legal expenses in connection with the foregoing.
Except as set forth below, the Manager pays all expenses of the Portfolios,
including, without limitation: the charges and expenses of any registrar, any
custodian or depository appointed by the Company for the safekeeping of its
cash, portfolio securities and other property, and any stock transfer, dividend
or accounting agent or agents appointed by the Company; all fees payable by the
Company to federal, state or other governmental agencies; the costs and expenses
of engraving or printing certificates representing shares of the Company (the
Company does not issue share certificates at the present time); all costs and
expenses in connection with the registration and maintenance of registration of
the Portfolios and their shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting, and distributing
prospectuses and statements of additional information of the Company and
supplements thereto to the Company's shareholders and to potential shareholders
of the Portfolios; all expenses of shareholders' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Portfolios' shares; routine fees and expenses of
legal counsel and of independent accountants, in connection with any matter
relating to the Company; postage; insurance premiums on property or personnel
(including officers and directors) of the Company which inure to its benefit;
and all other charges and costs of the Portfolios' operations unless otherwise
explicitly assumed by the Company. The Company is responsible for payment of the
following expenses not borne by the Manager: (a) the fees of the directors who
are not "interested persons" of the Company, as defined by the 1940 Act, and
travel and related expenses of the directors for attendance at meetings; (b)
interest, taxes and brokerage commissions (which can be expected to be
insignificant); (c) extraordinary expenses, if any, including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
related thereto; (d) any shareholder service or distribution fee payable by the
Company under the plan of distribution described below; and (e) membership dues
of any industry association.
Expenses which are attributable to any of the Company's Portfolios are charged
against the income of such Portfolio in determining net income for dividend
purposes. Expenses of the Company which are not directly attributable to the
operations of any single Portfolio are allocated among the Portfolios based upon
the relative net assets of each Portfolio.
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DISTRIBUTOR AND PLANS OF DISTRIBUTION
The Distributor serves as the principal underwriter of the Company's shares
pursuant to Distribution Agreements dated September 15, 1993. The Distributor
has an office located at 600 Fifth Avenue, New York, New York 10020.
Pursuant to the Distribution Agreements, the Distributor: (a) solicits and
receives orders for the purchase of shares of the Portfolios, accepts or rejects
such orders on behalf of the Company in accordance with the Company's currently
effective Prospectuses and transmits such orders as are accepted to the Company
as promptly as possible; (b) receives requests for redemptions and transmits
such redemption requests to the Company as promptly as possible; (c) responds to
inquiries from shareholders concerning the status of their accounts and the
operation of the Company; and (d) provides daily information concerning yields
and dividend rates to shareholders. The Distributor shall not be liable to the
Company or to its shareholders for any act or omission or any loss sustained by
the Company or its shareholders except in the case of the Distributor's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Distributor receives no compensation from the Company for its services.
On July 18, 1997, the Distributor entered into a Primary Dealer Agreement with
J.C. Bradford & Co. LLC ("J.C.Bradford") in order to provide for the offer and
sale of the Funds, under an arrangement where J.C. Bradford automatically
"sweeps" free credit balances into a Fund at the end of each day, allowing the
J.C. Bradford account holder to earn dividends otherwise unavailable in his
brokerage account.
Each Portfolio has adopted a plan of distribution under Rule 12b-1 of the 1940
Act (the "Plans") with respect to the Funds. Pursuant to the Funds' Plans, the
Distributor may pay certain promotional and advertising expenses and may
compensate certain registered securities dealers (including J.C. Bradford) and
financial institutions for services provided in connection with the processing
of orders for purchase or redemption of the shares of the Company and furnishing
other shareholder services. Payments by the Distributor are paid out of the
management fees and distribution plan payments received by the Manager and/or
its affiliates from each of the Funds, out of past profits or from any other
source available to the Distributor. J.C. Bradford may enter into shareholder
processing and service agreements (the "Shareholder Service Agreements") with
any securities dealer who is registered under the Securities Exchange Act of
1934 and a member in good standing of the National Association of Securities
Dealers, Inc., and with banks and other financial institutions which may wish to
establish accounts or sub-accounts on behalf of their customers ("Shareholder
Service Agents"). For processing investor purchase and redemption orders,
responding to inquiries from Fund shareholders concerning the status of their
accounts and operations of the Funds and communicating with J.C. Bradford and
the Distributor, the Company may pay each such Shareholder Service Agent (or if
no Shareholder Service Agent provides services, the Distributor, to cover
expenditures for advertising, sales literature and other promotional materials
on behalf of the Company) an amount not to exceed on an annual basis 0.25% of
the aggregate average daily net assets that such Shareholder Service Agent's
customers maintain with the Funds during the term of any Shareholder Service
Agreement. The Company also offers other classes of shares of the Portfolios
with different distribution arrangements designed for institutional and other
categories of investors.
The Distributor, under the Plans, may also make payments to J.C. Bradford and/or
Shareholder Service Agents out of the investment management fees received by the
Manager from each of the Funds, out of its past profits or from any other source
available to the Distributor.
The fees payable to Shareholder Service Agents under Shareholder Service
Agreements are negotiated by the Distributor. The Distributor will report
quarterly to the Board of Directors on the rate to be paid under each such
agreement and the amounts paid or payable under such agreements. The rate of
payment will be based upon the Distributor's analysis of: (1) the contribution
that the Shareholder Service Agent makes to each of the Portfolios by increasing
assets under management and reducing expense ratios; (2) the nature, quality and
scope of services being provided by the Shareholder Service Agent; (3) the cost
to the Company if shareholder services were provided directly by the Company or
other authorized persons; (4) the costs incurred by the Shareholder Service
Agent in connection with providing services to shareholders; and (5) the need to
respond to competitive offers of others, which could result in assets being
withdrawn from a Portfolio and an increase in the expense ratio for any of the
Portfolios.
The Distribution Agreements for each of the Funds were last approved by the
Board of Directors on June 25, 1997, to provide for the distribution of the
shares of each of the Funds. The Distribution Agreements will continue in effect
from year to year if specifically approved at least annually by the Board of
Directors and the affirmative vote of a majority of the directors who are not
parties to the Distribution Agreements or any Shareholder Service Agreement or
"interested persons" of any such party by votes cast in person at a meeting
called for such purpose. In approving the Plans, the directors determined, in
the exercise of their business judgment and in light of their fiduciary duties
as directors of the Company, that there was a reasonable likelihood that the
Plans would benefit the Funds and their shareholders. The Plans may only be
renewed if the directors make a similar determination for each subsequent year.
The Plans may not be amended to increase the maximum amount of payments by the
Company or the Manager to its Shareholder Service Agents without shareholder
approval, and all material amendments to the provisions of the Plans must be
approved by
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the Board of Directors and by the directors who have no direct or indirect
financial interest in the Plans, by votes cast in person at a meeting called for
the purpose of such vote. Each Fund or the Distributor may terminate the
Distribution Agreements on 60 days' written notice without penalty. The
Distribution Agreements terminate automatically in the event of their
"assignment," as defined in the 1940 Act. The services of the Distributor to the
Funds are not exclusive, and it is free to render similar services to others.
The Plans may also be terminated by each of the Funds or by the Manager or in
the event of their "assignment," as defined in the 1940 Act, on the same basis
as the Distribution Agreements.
Although it is a primary objective of the Plans to reduce expenses of the
Portfolios by fostering growth in the Portfolios' net assets, there can be no
assurance that this objective of the Plans will be achieved; however, based on
the data and information presented to the Board of Directors by the Manager and
the Distributor, the Board of Directors determined that there is a reasonable
likelihood that the benefits of growth in the size of the Portfolios can be
accomplished under the Plans.
When the Board of Directors approved the Distribution Agreements, the Primary
Dealer Agreement, the forms of Shareholder Service Agreement and the Plans, the
Board of Directors requested and evaluated such information as they deemed
reasonably necessary to make an informed determination that the Distribution
Agreements, Plans and related agreements should be approved. They considered and
gave appropriate weight to all pertinent factors necessary to reach the good
faith judgment that the Distribution Agreements, Plans and related agreements
would benefit the Portfolios and their respective shareholders.
The Board of Directors reviewed, among other things, (1) the nature and extent
of the services to be provided by the Manager, the Distributor, J.C. Bradford
and the Shareholder Service Agents, (2) the value of all benefits received by
the Manager, (3) the overhead expenses incurred by the Manager attributable to
services provided to the Company's shareholders, and (4) expenses of the Company
being assumed by the Manager.
In connection with the approval of the Plans, the Board of Directors also
determined that the Portfolios would be expected to receive at least the
following benefits:
1) The Distributor and Shareholder Service Agents will furnish rapid access by
a shareholder to his Portfolio account for the purpose of effecting
executions of purchase and redemption orders.
2) The Distributor and Shareholder Service Agents will provide prompt,
efficient and reliable responses to inquiries of a shareholder concerning
his account status.
3) The Company's ability to sustain a relatively predictable flow of cash for
investment purposes and to meet redemptions facilitates more successful,
efficient portfolio management and the achievement of each of the
Portfolios' fundamental policies and objectives of providing stability of
principal, liquidity, and, consistent with the foregoing, the highest
possible current income, is enhanced by a stable network of distribution.
4) A successful distribution effort will assist the Manager in maintaining and
increasing the organizational strength needed to serve the Company.
5) The establishment of an orderly system for processing sales and redemptions
is also important to the Company's goal of maintaining the constant net
asset value of each Portfolio's shares, which most shareholders depend
upon. By identifying potential investors whose needs are served by the
objectives of the Portfolio, a well-developed, dependable network of
Shareholder Service Agents may help to curb sharp fluctuations in rates of
redemptions and sales, thereby reducing the chance that an unanticipated
increase in net redemptions could adversely affect the ability of the
Portfolios to stabilize their net asset values per share.
6) The Company expects to share in the benefits of growth in the Portfolios'
net assets by achieving certain economies of scale based on a reduction in
the management fees, although the Manager will receive a larger fee if net
assets grow.
The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Portfolio
to make payments to the Distributor pursuant to the Plan will cease and the
Portfolio will not be required to make any payments past the date the Plan
terminates.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit federally chartered or supervised banks from engaging in the business
of underwriting, selling or distributing securities. Accordingly, the
Distributor will engage banks as shareholder service agents only to perform
administrative and shareholder servicing functions. While the matter is not free
from doubt, the management of the Company believes that such laws should not
preclude a bank from acting as a shareholder service agent. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, shareholder clients of such bank would be
permitted to remain Fund shareholders and alternate means for continuing the
servicing of such shareholders would be
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sought. In such event, changes in the operation of Fund might occur and
shareholders serviced by such bank might no longer be able to avail themselves
of any automatic investment or other services then being provided by such bank.
It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
State law may, in some jurisdictions, differ from the foregoing discussion of
the Glass-Steagall Act and from other applicable federal law. Prior to entering
into shareholder servicing agreements with banks in Texas, the Distributor will
obtain a representation from such banks that they are either registered as
dealers in Texas, or that they will not engage in activities that would
constitute acting as dealers under Texas State law.
CUSTODIAN
Investors Fiduciary Trust Company acts as custodian for the Company's portfolio
securities and cash. Investors Fiduciary Trust Company receives such
compensation from the Manager for its services in such capacity as is agreed to
from time to time by Investors Fiduciary Trust Company and the Manager. The
address of Investors Fiduciary Trust Company is 127 West 10th Street, Kansas
City, Missouri 64105.
TRANSFER AGENT
Reich & Tang Services L.P., 600 Fifth Avenue, New York, New York 10020, an
affiliate of the Manager, acts as transfer agent with respect to the Funds. All
costs associated with performing such services are borne by the Manager.
SUB-ACCOUNTING
The Manager, at its expense, will provide sub-accounting services to all
shareholders and maintain information with respect to underlying owners.
PRINCIPAL HOLDERS OF SECURITIES
On June 30, 1997 there were 2,236,979,166 shares of the Portfolios outstanding.
As of June 30, 1997 the amount of shares owned by all officers and directors of
the Portfolios as a group was less than 1% of the outstanding shares of the
Portfolios. To the best of the knowledge of the company, no person or entity
held 5% or more of the outstanding voting securities of any of the Portfolios.
REPORTS
The Company furnishes shareholders with semi-annual reports containing
information about the Portfolios and their operations, including a schedule of
investments held by the Portfolios and the financial statements for each
Portfolio. The annual financial statements are audited by the Company's
independent auditors. The Board of Directors has selected Ernst & Young LLP, 787
Seventh Avenue, New York, NY 10019, as the Company's independent auditors to
audit the Portfolios' financial statements and to review the Portfolios' tax
returns.
SHARE PURCHASES AND REDEMPTIONS
PURCHASES AND REDEMPTIONS
A complete description of the manner in which the Company's shares may be
purchased, redeemed or exchanged appears in the Prospectus under the captions
"How to Purchase Shares," "Redemption Procedures," and "Exchanges."
The possibility that shareholders who maintain accounts of less than $250 in
value will be subject to mandatory redemption is also described under the
caption "Redemption Procedures." If the Board of Directors authorizes mandatory
redemption of such small accounts, the holders of shares with a value of less
than $250 will be notified that they must increase their investment to $250 or
their shares will be redeemed on or after the 60th day following such notice or
pay a fee. Involuntary redemptions will not be made if the decline in value of
the account results from a decline in the net asset value of a share of any of
the Portfolios. The Company does not presently redeem such small accounts and
does not currently intend to do so.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange is restricted, as determined by
applicable rules and regulations of the SEC, (b) the New York Stock Exchange is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposal of portfolio securities or the valuation of the net
assets of a Portfolio not reasonably practicable.
NET ASSET VALUE DETERMINATION
The net asset values of the Portfolios are determined twice daily as of 12 noon
and 4:15 p.m. Eastern time on each day the New York Stock Exchange and the
Company's custodian are open for business.
For the purpose of determining the price at which shares of the Portfolios are
issued and redeemed, the net asset value per share is calculated immediately
after the daily dividend declaration by: (a) valuing all securities and
instruments of
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a Portfolio as set forth below; (b) deducting such Portfolio's liabilities; (c)
dividing the resulting amount by the number of shares outstanding of such
Portfolio; and (d) rounding the per share net asset value to the nearest whole
cent. As discussed below, it is the intention of the Company to maintain a net
asset value per share of $1.00 for each of the Portfolios.
The debt instruments held in each of the Portfolio's portfolios are valued on
the basis of amortized cost. This method involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price a Portfolio would receive if it sold the entire
portfolio. During periods of declining interest rates, the daily yield for a
Portfolio, computed as described under the caption "Dividends and Tax Matters"
below, may be higher than a similar computation made by a fund with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio instruments. Thus, if the
use of amortized cost by a Portfolio results in a lower aggregate portfolio
value for such Portfolio on a particular day, a prospective investor in the
Portfolio would be able to obtain a somewhat higher yield than would result from
an investment in a fund utilizing solely market values, and existing investors
in such Portfolio would receive less investment income. The converse would apply
in a period of rising interest rates.
As it is difficult to evaluate the likelihood of exercise or potential benefit
of a Stand-by Commitment, described under the caption "Investment Program -
Stand-by Commitments," such commitments will be considered to have no value,
regardless of whether any direct or indirect consideration is paid for such
commitments. Where the Municipal Money Market Portfolio has paid for a Stand-by
Commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held.
The valuation of the portfolio instruments based upon their amortized cost, the
calculation of each Portfolio's per share net asset value to the nearest whole
cent and the concomitant maintenance of the net asset value per share of $1.00
for each of the Portfolios is permitted in accordance with applicable rules and
regulations of the SEC, which require the Portfolios to adhere to certain
conditions. Each Portfolio maintains a dollar-weighted average portfolio
maturity of 90 days or less, purchases only instruments having remaining
maturities of thirteen months or less and invests only in securities determined
by the Manager to be of high quality with minimal credit risk. The Board of
Directors is required to establish procedures designed to stabilize, to the
extent reasonably possible, each Portfolio's price per share at $1.00 as
computed for the purpose of sales and redemptions. Such procedures include
review of a Portfolio's portfolio holdings by the Board of Directors, at such
intervals as they may deem appropriate, to determine whether the net asset value
calculated by using available market quotations or other reputable sources for a
Portfolio deviates from $1.00 per share and, if so, whether such deviation may
result in material dilution or is otherwise unfair to existing holders of the
shares of the Portfolio. In the event the Board of Directors determines that
such a deviation exists for a Portfolio, it will take such corrective action as
the Board of Directors deems necessary and appropriate, including the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten the average portfolio maturity; the withholding of dividends; redemption
of shares in kind; or the establishment of a net asset value per share by using
available market quotations.
DIVIDENDS AND TAX MATTERS
Dividends
All of the net income earned by each Portfolio is declared daily as dividends to
the respective holders of record of each Portfolio. Net income for each of the
Portfolios for dividend purposes (from the time of the immediately preceding
determination thereof) consists of (a) interest accrued and discount earned, if
any, on the assets of each Portfolio and any general income of the Company
prorated to such Portfolio based on the relative net assets of such Portfolio,
less (b) amortization of premium and accrued expenses for the applicable
dividend period attributable directly to such Portfolio and general expenses of
the Company prorated to such Portfolio based on the relative net assets of such
Portfolio. The amount of discount or premium on instruments in each Portfolio's
portfolio is fixed at the time of purchase of the instruments. See "Net Asset
Value Determination" above. Realized gains and losses on portfolio securities
held by each Portfolio will be reflected in the net asset value of such
Portfolio. Each Portfolio expects to distribute any net realized short-term
gains of such Portfolio at least once each year, although it may distribute them
more frequently if necessary in order to maintain such Portfolio's net asset
value at $1.00 per share. The Portfolios do not expect to realize net long-term
capital gains.
Should any of the Portfolios incur or anticipate any unusual expense, loss or
depreciation which would adversely affect the net asset value per share or net
income per share of a Portfolio for a particular period, the Board of Directors
would at that time consider whether to adhere to the present dividend policy
described above or to revise it in light of then prevailing circumstances. For
example, if the net asset value per share of a Portfolio were reduced, or was
anticipated to be reduced, below $1.00, the Board of Directors may suspend
further dividend payments with respect to that Portfolio until the net asset
value per share returns to $1.00. Thus, such expense or loss or depreciation
might result in
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a shareholder receiving no dividends for the period during which he held shares
of the Portfolio and/or in his receiving upon redemption a price per share lower
than the price which he paid.
Dividends on a Portfolio's shares are normally payable on the first day
following the date that a share purchase or exchange order is effective and on
the date that a redemption order is effective. The net income of a Portfolio for
dividend purposes is determined as of 12:00 noon Eastern time on each "business
day" of the Company, as defined in the Prospectus and immediately prior to the
determination of each Portfolio's net asset value on that day. Dividends are
declared daily and reinvested in the form of additional full and fractional
shares of each Portfolio at net asset value. A shareholder may elect to have the
aggregate dividends declared and paid monthly to him by check.
Tax Matters
The following is only a summary of certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not described
in the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of each Portfolio or its shareholders, and the discussions here
and in the Prospectus are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
Each Portfolio has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, each Portfolio is not subject to federal income
tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by a Portfolio made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and will therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must: (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement"); and (2) derive less than 30% of its gross
income (exclusive of certain gains on designated hedging transactions that are
offset by realized or unrealized losses on offsetting positions) from the sale
or other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). For purposes of these calculations, gross income of
the Municipal Money Market Portfolio includes tax-exempt income. However,
foreign currency gains, including those derived from options, futures and
forwards, will not in any event be characterized as Short-Short Gain if they are
directly related to the regulated investment company's investments in stock or
securities (or options or futures thereon). Because of the Short-Short Gain
Test, a Portfolio may have to limit the sale of appreciated securities that it
has held for less than three months. However, the Short-Short Gain Test will not
prevent a Portfolio from disposing of investments at a loss, since the
recognition of a loss before the expiration of the three-month holding period is
disregarded for this purpose. Interest (including original issue discount)
received by a Portfolio at maturity or upon the disposition of a security held
for less than three months will not be treated as gross income derived from the
sale or other disposition of such security within the meaning of the Short-Short
Gain Test. However, income that is attributable to realized market appreciation
will be treated as gross income from such sale or other disposition of
securities for this purpose.
In general, gain or loss recognized by a Portfolio on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including municipal obligations) purchased by
a Portfolio at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Portfolio held the
debt obligation.
Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Portfolio must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each
Portfolio's taxable year, at least 50% of the value of the Portfolio's assets
must consist of cash and cash items, U.S. Government
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securities, securities of other regulated investment companies, and securities
of other issuers (as to each of which the Portfolio has not invested more than
5% of the value of the Portfolio's total assets in securities of such issuer and
does not hold more than 10% of the outstanding voting securities of such
issuer), and no more than 25% of the value of its total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Portfolio controls and which are engaged in the same or similar trades
or businesses. For purposes of asset diversification testing, obligations issued
or guaranteed by agencies or instrumentalities of the U.S. Government such as
the Federal Agricultural Mortgage Corporation, the Farm Credit System Financial
Assistance Corporation, a Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Government National
Mortgage Corporation, and the Student Loan Marketing Association are treated as
U.S. Government securities.
If for any taxable year a Portfolio does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Portfolio's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to at least the sum of
98% of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
(Tax-exempt interest on municipal obligations is not subject to the excise tax.)
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1) reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year; and (2) exclude foreign currency
gains and losses incurred after October 31 of any year (or after the end of its
taxable year if it has made a taxable year election) in determining the amount
of ordinary taxable income for the current calendar year (and, instead, include
such gains and losses in determining ordinary taxable income for the succeeding
calendar year).
Each Portfolio intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Portfolio may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
PORTFOLIO DISTRIBUTIONS
Each Portfolio anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will not qualify for the 70% dividends-received deduction
for corporate shareholders.
Each Portfolio may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Portfolio currently intends to distribute any
such amounts. Net capital gain that is distributed and designated as a capital
gain dividend will be taxable to shareholders as long-term capital gain,
regardless of the length of time a shareholder has held his shares or whether
such gain was recognized by the Portfolio prior to the date on which the
shareholder acquired his shares.
Conversely, if a Portfolio elects to retain its net capital gain, the Portfolio
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Portfolio elects to retain its
net capital gain, it is expected that the Portfolio also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of his pro rata share of such gain, with the result that
each shareholder will be required to report his pro rata share of such gain on
his tax return as long-term capital gain, will receive a refundable tax credit
for his pro rata share of tax paid by the Portfolio on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
The Municipal Money Market Portfolio intends to qualify to pay exempt-interest
dividends by satisfying the requirement that at the close of each quarter of the
Municipal Money Market Portfolio's taxable year at least 50% of the Portfolio's
total assets consists of tax-exempt municipal obligations. Distributions from
the Municipal Money Market Portfolio will constitute exempt-interest dividends
to the extent of the Portfolio's tax-exempt interest income (net of expenses and
amortized bond premium). Exempt-interest dividends distributed to shareholders
of the Municipal Money Market Portfolio are excluded from gross income for
federal income tax purposes. However, shareholders required to file federal
income tax returns will be required to report the receipt of exempt-interest
dividends on their returns. Moreover,
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while exempt-interest dividends are excluded from gross income for federal
income tax purposes, they may be subject to alternative minimum tax ("AMT") in
certain circumstances and may have other collateral tax consequences as
discussed below. Distributions by the Municipal Money Market Portfolio of any
investment company taxable income or of any net capital gain will be taxable to
shareholders as discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the regular
tax and is computed at a maximum marginal rate of 28% for noncorporate taxpayers
and 20% for corporate taxpayers on the excess of the taxpayer's alternative
minimum taxable income ("AMTI") over an exemption amount. Exempt-interest
dividends derived from certain "private activity" municipal obligations issued
after August 7, 1986 will generally constitute an item of tax preference
includable in AMTI for both corporate and noncorporate taxpayers. In addition,
exempt-interest dividends derived from all municipal obligations, regardless of
the date of issue, must be included in adjusted current earnings, which are used
in computing an additional corporate preference item (i.e., 75% of the excess of
a corporate taxpayer's adjusted current earnings over its AMTI (determined
without regard to this item and the AMT net operating loss deduction))
includable in AMTI.
Exempt-interest dividends must be taken into account in computing the portion,
if any, of social security or railroad retirement benefits that must be included
in an individual shareholder's gross income and subject to federal income tax.
Further, a shareholder of the Municipal Money Market Portfolio is denied a
deduction for interest on indebtedness incurred or continued to purchase or
carry shares of the Municipal Money Market Portfolio. Moreover, a shareholder
who is (or is related to) a "substantial user" of a facility financed by
industrial development bonds held by the Municipal Money Market Portfolio will
likely be subject to tax on dividends paid by the Municipal Money Market
Portfolio which are derived from interest on such bonds. Receipt of
exempt-interest dividends may result in other collateral federal income tax
consequences to certain taxpayers, including financial institutions, property
and casualty insurance companies and foreign corporations engaged in a trade or
business in the United States. Prospective investors should consult their own
tax advisers as to such consequences.
Distributions by a Portfolio that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his shares; any excess will be treated as gain from the sale of his shares, as
discussed below.
Distributions by a Portfolio will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Portfolio (or of another fund). Shareholders receiving
a distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Portfolio reflects undistributed
net investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Portfolio, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although they economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Portfolio into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Portfolio) on December
31 of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Portfolio will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Portfolio that it is not subject to backup withholding or that it
is an "exempt recipient" (such as a corporation).
SALE OR REDEMPTION OF PORTFOLIO SHARES
Each Portfolio seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Portfolios will do this. In such a
case, a shareholder will recognize gain or loss on the sale or redemption of
shares of a Portfolio in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of a Portfolio within 30 days before or after
the sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of a Portfolio will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. However, any capital loss arising from the
sale or redemption of shares held for six months or less will be disallowed to
the extent of the amount of exempt-interest dividends received on such shares
and (to the extent not disallowed) will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holding period rules of Code Section 246(c)(3) and
(4) generally will apply in determining the
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holding period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 11.6% lower than the maximum rate applicable
to ordinary income. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Portfolio is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Portfolio is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
a foreign shareholder will be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate) upon the gross amount of the dividend. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of a Portfolio, capital gain dividends and
exempt-interest dividends and amounts retained by the Portfolio that are
designated as undistributed capital gains.
If the income from a Portfolio is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Portfolio will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.
In the case of a foreign noncorporate shareholder, a Portfolio may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholder furnishes the Portfolio with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Portfolio, including
the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION AND LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies often
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in a Portfolio.
YIELD INFORMATION
The yield for each Portfolio can be obtained by calling your securities dealer
or the Distributor at (212) 830-5280 if calling from New Jersey, Alaska or
Hawaii, or by calling toll free at (800) 433-1918 if calling from elsewhere in
the continental U.S. Quotations of yield on the Portfolios may also appear from
time to time in the financial press and in advertisements.
The current yields quoted will be the net average annualized yield for an
identified period, usually seven consecutive calendar days. Yield for a
Portfolio will be computed by assuming that an account was established with a
single share of such Portfolio (the "Single Share Account") on the first day of
the period. To arrive at the quoted yield, the net change in the value of that
Single Share Account for the period (which would include dividends accrued with
respect to the share, and dividends declared on shares purchased with dividends
accrued and paid, if any, but would not include realized gains and losses or
unrealized appreciation or depreciation) will be multiplied by 365 and then
divided by the number of days in the period, with the resulting figure carried
to the nearest hundredth of 1%. The Company may also furnish a quotation of
effective yield for each Portfolio that assumes the reinvestment of dividends
for a 365 day year and a return for the entire year equal to the average
annualized yield for the period, which will be computed by compounding the
unannualized current yield for the period by adding 1 to the unannualized
current yield, raising the sum to a power equal to 365 divided by the number of
days in the period, and then subtracting 1 from the result. Historical yields
are not necessarily indicative of future yields. Rates of return will vary as
interest rates and other conditions affecting money market instruments change.
Yields also depend on the quality, length of maturity and type of instruments in
each Portfolio's portfolio and each Portfolio's operating expenses. Quotations
of yields will be accompanied by information concerning the average weighted
maturity of the Portfolios. Comparison of the quoted yields of various
investments is valid only if yields are calculated in the same manner and for
identical limited periods. When comparing the yield for one of the Portfolios
with yields quoted with respect to other investments, shareholders should
consider (a) possible differences in time periods, (b) the effect of the methods
used to calculate quoted yields, (c) the quality and average-weighted maturity
of portfolio investments, expenses, convenience, liquidity and other important
factors, and (d) the taxable or tax-exempt character of all or part of dividends
received.
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INVESTMENT PROGRAMS AND RESTRICTIONS
Investment Programs
Information concerning the fundamental investment objectives of the Company and
each Portfolio is set forth in the Prospectus, respectively, under the captions
"Investment Programs" or "Investment Program." The principal features of the
investment programs and the primary risks associated with those investment
programs of the Company and the Portfolios are discussed in the Prospectus under
the aforementioned captions.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Portfolios which augments the summary of the
Company's and the Portfolios' investment programs which appears in the
Prospectus, under the aforementioned captions. The Company seeks to achieve its
objectives by investing in portfolios of short-term instruments rated high
quality by a major rating service or determined to be of high quality by the
Manager under the supervision of the Board of Directors.
Subsequent to its purchase by a Portfolio, a particular issue of Municipal
Securities, as defined in the Prospectus under the aforementioned captions may
cease to be rated, or its rating may be reduced below the minimum required for
purchase by the Portfolios. Neither event requires the elimination of such
obligation from a Portfolio's portfolio, but the Manager will consider such an
event to be relevant in its determination of whether the Portfolio should
continue to hold such obligation in its portfolio. To the extent that the
ratings accorded by a nationally recognized statistical rating organization
("NRSRO") for Money Market Obligations or Municipal Securities may change as a
result of changes in these rating systems, the Company will attempt to use
comparable ratings as standards for its investments in Money Market Obligations
and Municipal Securities in accordance with the investment policies contained
herein.
The Municipal Money Market Fund may, from time to time, on a temporary or
defensive basis, invest in U.S. Government Obligations, Money Market Obligations
and repurchase agreements. The Municipal Money Market Fund may invest in these
temporary investments, for example, due to market conditions or pending
investment of proceeds from sales of shares or proceeds from the sale of
portfolio securities or in anticipation of redemptions. Although interest earned
from such temporary investments will be taxable as ordinary income, the
Municipal Money Market Fund intends to minimize taxable income through
investment, when possible, in short-term tax-exempt securities, which may
include shares of investment companies whose dividends are tax-exempt. (See
"Investment Programs and Restrictions - Investment Restrictions" for limitations
on the Municipal Money Market Fund's investment in repurchase agreements and
shares of other investment companies.) It is a fundamental policy of the
Municipal Money Market Fund that the Municipal Money Market Fund's assets will
be invested so that at least 80% of the Municipal Money Market Fund's income
will be exempt from federal income taxes. However, there is no limitation on the
percentage of such income which may constitute an item of tax preference and
which may therefore give use to an alternative minimum tax liability for
individual shareholders. The Municipal Money Market Fund may hold cash reserves
pending the investment of such reserves in Municipal Securities or short-term
tax-exempt securities.
The investment objectives and policies of the Company are "fundamental" only
where noted. Fundamental policies may only be changed by a vote of the majority
of the outstanding shares of the affected Portfolios. (See "General Information
About the Company - The Company and its Shares.") There can be no assurance that
the Portfolios' objectives will be achieved.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Company's two Portfolios which augments the summary
of each Portfolio's investment program which appears in the Prospectus under the
captions "Investment Programs" or "Investment Program," respectively. The
Company seeks to achieve the objectives of its Portfolios by investing in money
market instruments.
The U.S. Government Fund limits investments to U.S. Government Obligations
consisting of marketable securities and instruments issued or guaranteed by the
U.S. Government or by certain of its agencies or instrumentalities. Direct
obligations are issued by the U.S. Treasury and include bills, certificates of
indebtedness, notes and bonds. Obligations of U.S. Government agencies and
instrumentalities ("Agencies") are issued by government-sponsored agencies and
enterprises acting under authority of Congress. Certain Agencies are backed by
the full faith and credit of the U.S. Government, and others are not.
The Municipal Money Market Fund endeavors to achieve its objective by investing
in the following securities. Municipal Securities in which the Municipal Money
Market Fund may invest include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Securities may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, airport, mass
transit, industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity
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or sewage or solid waste disposal. The interest paid on such bonds may be exempt
from federal income tax, although current federal tax laws place substantial
limitations on the purposes and size of such issues. Such obligations are
considered to be Municipal Securities, provided that the interest paid thereon
qualifies as exempt from federal income tax in the opinion of bond counsel.
However, interest on Municipal Securities may give rise to a federal alternative
minimum tax liability and may have other collateral federal income tax
consequences. (See "Dividends and Tax Matters - Tax Matters" herein.)
The two major classifications of Municipal Securities are bonds and notes. Bonds
may be further categorized as "general obligation" or "revenue" issues. General
obligation bonds are secured by the issuer's pledge of its faith, credit, and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax-exempt
industrial development bonds are in most cases revenue bonds and do not
generally carry the pledge of the credit of the issuing municipality. Notes are
short-term instruments which usually mature in less than two years. Most notes
are general obligations of the issuing municipalities or agencies and are sold
in anticipation of a bond sale, collection of taxes or receipt of other
revenues. There are, of course, variations in the risks associated with
Municipal Securities, both within a particular classification and between
classifications. The Municipal Money Market Fund's assets may consist of any
combination of general obligation bonds, revenue bonds, industrial revenue bonds
and notes. The percentage of such securities in the Municipal Money Market
Fund's portfolio will vary from time to time.
For the purpose of diversification, the identification of the issuer of
Municipal Securities depends on the terms and conditions of the security. When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
subdivision and the security is backed only by the assets and revenues of the
subdivision, such subdivision would be deemed to be the sole issuer. Similarly,
in the case of an industrial development bond, if that bond is backed only by
the assets and revenues of the non-governmental user, then such non-governmental
user would be deemed to be the sole issuer. If, however, in either case, the
creating government or some other entity guarantees a security, such a guarantee
would be considered a separate security and will be treated as an issue of such
government or other agency. Certain Municipal Securities may be secured by the
guarantee or irrevocable letter of credit of a major banking institution. In
such case, the Municipal Money Market Fund reserves the right to invest up to
10% of its total assets in Municipal Securities guaranteed or secured by the
credit of a single bank. Furthermore, if the primary issuer of a Municipal
Security or some other non-governmental user which guarantees the payment of
interest on and principal of a Municipal Security possesses credit
characteristics which qualify an issue of Municipal Securities for a high
quality rating from a major rating service (or a determination of high quality
by the Manager and the Board of Directors of the Company) without reference to
the guarantee or letter of credit of a banking institution, the banking
institution will not be deemed to be an issuer for the purpose of applying the
foregoing 10% limitation.
From time to time, various proposals to restrict or eliminate the federal income
tax exemption for interest on Municipal Securities have been introduced before
Congress. Similar proposals may be introduced in the future, and if enacted, the
availability of Municipal Securities for investment by the Municipal Money
Market Fund could be adversely affected. In such event, the Board of Directors
would reevaluate the investment objective and policies and submit possible
changes in the structure of the Municipal Money Market Fund for the
consideration of shareholders.
The Company may enter into the following arrangements with respect to the two
Portfolios:
1) Repurchase Agreements under which the purchaser (for example, one of the
Portfolios) acquires ownership of an obligation (e.g., a debt instrument or
time deposit) and the seller agrees, at the time of the sale, to repurchase
the obligation at a mutually agreed upon time and price, thereby
determining the yield during the purchaser's holding period. This
arrangement results in a fixed rate of return insulated from market
fluctuations during such period. Although the underlying collateral for
repurchase agreements may have maturities exceeding one year, a Portfolio
will not enter into a repurchase agreement if as a result of such
transaction more than 10% of a Portfolio's total assets would be invested
in illiquid securities, including repurchase agreements expiring in more
than seven days. A Portfolio may, however, enter into a "continuing
contract" or "open" repurchase agreement under which the seller is under a
continuing obligation to repurchase the underlying obligation from the
Portfolio on demand and the effective interest rate is negotiated on a
daily basis. In general, the Portfolios will enter into repurchase
agreements only with domestic banks with total assets of at least $1.5
billion or with primary dealers in U.S. Government securities, but total
assets will not be the sole determinative factor, and the Portfolios may
enter into repurchase agreements with other institutions which the Board of
Directors believes present minimal credit risks. Nevertheless, if the
seller of a repurchase agreement fails to repurchase the debt instrument in
accordance with the terms of the agreement, the Portfolio which entered
into the repurchase agreement may incur a loss to the extent that the
proceeds it realizes on the sale of the underlying obligation are less than
the repurchase price. Repurchase agreements are considered to be loans by
the Company under the 1940 Act.
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2) Reverse Repurchase Agreements involving the sale of money market
instruments held by a Portfolio, with an agreement that the Portfolio will
repurchase the instruments at an agreed upon price and date. A Portfolio
will employ reverse repurchase agreements when necessary to meet
unanticipated net redemptions so as to avoid liquidating other money market
instruments during unfavorable market conditions, or in some cases as a
technique to enhance income, and only in amounts up to 10% of the value of
a Portfolio's total assets at the time it enters into a reverse repurchase
agreement. At the time it enters into a reverse repurchase agreement, the
Portfolio will place in a segregated custodial account high-quality debt
securities having a dollar value equal to the repurchase price. A Portfolio
will utilize reverse repurchase agreements when the interest income to be
earned from portfolio investments which would otherwise have to be
liquidated to meet redemptions is greater than the interest expense
incurred as a result of the reverse repurchase transactions.
3) Delayed Delivery Agreements involving commitments by a Portfolio to dealers
or issuers to acquire securities or instruments at a specified future date
beyond the customary same-day settlement for money market instruments.
These commitments may fix the payment price and interest rate to be
received on the investment. Delayed delivery agreements will not be used as
a speculative or leverage technique. Rather, from time to time, the Manager
can anticipate that cash for investment purposes will result from scheduled
maturities of existing portfolio instruments or from net sales of shares of
the Portfolio. To assure that a Portfolio will be as fully invested as
possible in instruments meeting that Portfolio's investment objective, a
Portfolio may enter into delayed delivery agreements, but only to the
extent of anticipated funds available for investment during a period of not
more than five business days. Until the settlement date, that Portfolio
will set aside in a segregated account high-quality debt securities of a
dollar value sufficient at all times to make payment for the delayed
delivery securities. Not more than 25% of a Portfolio's total assets will
be committed to delayed delivery agreements and when-issued securities, as
described below. The delayed delivery securities, which will not begin to
accrue interest until the settlement date, will be recorded as an asset of
the Portfolio and will be subject to the risks of market fluctuation. The
purchase price of the delayed delivery securities is a liability of the
Portfolio until settlement. Absent extraordinary circumstances, the
Portfolio will not sell or otherwise transfer the delayed delivery
securities prior to settlement. If cash is not available to the Portfolio
at the time of settlement, the Portfolio may be required to dispose of
portfolio securities that it would otherwise hold to maturity in order to
meet its obligation to accept delivery under a delayed delivery agreement.
The Board of Directors has determined that entering into delayed delivery
agreements does not present a materially increased risk of loss to
shareholders, but the Board of Directors may restrict the use of delayed
delivery agreements if the risk of loss is determined to be material or if
it affects the constant net asset value of any of the Portfolios.
WHEN-ISSUED SECURITIES
Many new issues of Municipal Securities are offered on a "when-issued" basis,
that is, the date for delivery of and payment for the securities is not fixed at
the date of purchase, but is set after the securities are issued (normally
within forty-five days after the date of the transaction). The payment
obligation and the interest rate that will be received on the securities are
fixed at the time the buyer enters into the commitment. A Portfolio will only
make commitments to purchase such Money Market Obligations and Municipal
Securities with the intention of actually acquiring such securities, but such
Portfolio may sell these securities before the settlement date if it is deemed
advisable. No additional when-issued commitments will be made if as a result
more than 25% of such Portfolio's net assets would become committed to purchases
of when-issued securities and delayed delivery agreements.
If one of the Portfolios purchases a when-issued security, it will direct its
custodian bank to collateralize the when-issued commitment by establishing a
segregated account in the same fashion as required for a Delayed Delivery
Agreement. The special custody account will likewise be marked-to-market, and
the amount in the special custody account will be increased if necessary to
maintain adequate coverage of the when-issued commitments.
Securities purchased on a when-issued basis and the securities held in a
Portfolio's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and changes in the
level of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates rise). Therefore, if, in order to achieve
higher interest income, a Portfolio is to remain substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a possibility that the market value of such Portfolio's assets will
fluctuate to a greater degree. Furthermore, when the time comes for such
Portfolio to meet its obligations under when-issued commitments, the Portfolio
will do so by using then-available cash flow, by sale of the securities held in
the separate account, by sale of other securities or, although it would not
normally expect to do so, by directing the sale of the when-issued securities
themselves (which may have a market value greater or less than the Portfolio's
payment obligation).
A sale of securities to meet such obligations carries with it a greater
potential for the realization of net short-term capital gains, which are not
exempt from federal income taxes. The value of when-issued securities on the
settlement date may be more or less than the purchase price.
STAND-BY COMMITMENTS
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The Municipal Money Market Fund may attempt to improve its portfolio liquidity
by assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the Municipal Money Market
Fund, when it purchases Municipal Securities for its portfolio from a broker,
dealer or other financial institution, to sell the same principal amount of such
securities back to the seller, at the Municipal Money Market Fund's option, at a
specified price. The Municipal Money Market Fund will acquire Stand-by
Commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes, and the acquisition or
exercisability of a Stand-by Commitment will not affect the valuation of its
underlying portfolio securities, which will continue to be valued in accordance
with the method described under "Share Purchases and Redemptions - Net Asset
Value Determination." The weighted average maturity of the Municipal Money
Market Fund's portfolio will not be affected by the acquisition of a Stand-by
Commitment.
The Stand-by Commitments acquired by the Municipal Money Market Fund will
generally have the following features: (1) they will be in writing and will be
physically held by the Municipal Money Market Fund's custodian; (2) they may be
exercised by the Municipal Money Market Fund at any time prior to the underlying
security's maturity; (3) they will be entered into only with dealers, banks and
broker-dealers who in the Manager's opinion present a minimal risk of default;
(4) the Municipal Money Market Fund's right to exercise them will be
unconditional and unqualified; (5) although the Stand-by Commitments will not be
transferable, Municipal Securities purchased subject to such commitments could
be sold to a third party at any time, even though the commitment was
outstanding; and (6) their exercise price will be (i) the Municipal Money Market
Fund's acquisition cost of the Municipal Securities which are subject to the
commitment (excluding any accrued interest which the Municipal Money Market Fund
paid on their acquisition), less any amortized market premium or plus amortized
market or original issue discount during the period the securities were owned by
the Municipal Money Market Fund, plus (ii) all interest accrued on the
securities since the last interest payment date. Since the Municipal Money
Market Fund values its portfolio securities on the amortized cost basis, the
amount payable under a Stand-by Commitment will be substantially the same as the
value of the underlying security.
The Company expects that Stand-by Commitments generally will be available
without the payment of any direct or indirect compensation. However, if
necessary and advisable, the Municipal Money Market Fund will pay for Stand-by
Commitments, either separately in cash or by paying higher prices for portfolio
securities which are acquired subject to the commitments. As a matter of policy,
the total amount "paid" in either manner for outstanding Stand-by Commitments
held by the Municipal Money Market Fund will not exceed 1/2 of 1% of the value
of its total assets calculated immediately after any Stand-by Commitment is
acquired. The Municipal Money Market Fund expects to refrain from exercising
Stand-by Commitments to avoid imposing a loss on a dealer and jeopardizing the
Company's business relationship with that dealer, except when necessary to
provide liquidity. The Municipal Money Market Fund will not acquire a Stand-by
Commitment unless immediately after the acquisition, with respect to 75% of the
total amortized cost value of its assets, not more than 5% of such Portfolio's
total amortized cost value of its assets will be invested in Stand-by
Commitments with the same institution.
The acquisition of a Stand-by Commitment would not affect the valuation or
assumed maturity of the underlying Municipal Securities which, as noted, would
continue to be valued in accordance with the amortized cost method. Stand-by
Commitments acquired by the Municipal Money Market Fund would be valued at zero
in determining net asset value. Where the Municipal Money Market Fund paid any
consideration directly or indirectly for a Stand-by Commitment, its cost would
be reflected as unrealized depreciation for the period during which the Stand-by
Commitment was held by such Fund.
MUNICIPAL PARTICIPATIONS
The Municipal Money Market Fund may invest in participation agreements with
respect to Municipal Securities under which the Municipal Money Market Fund
acquires an undivided interest in the Municipal Security and pays a bank which
sells the participation a servicing fee. The participation agreement will have a
variable rate of interest and may be terminated by the Municipal Money Market
Fund on seven days' notice, in which event such Fund receives from the issuer of
the participation the par value of the participation plus accrued interest as of
the date of termination. Before entering into purchases of participation the
Company will obtain an opinion of counsel (generally, counsel to the issuer of
the participation) or a letter ruling from the Internal Revenue Service to the
effect that interest earned with respect to municipal participation qualifies as
exempt-interest income under the Code. The Company has been advised that it is
the present policy of the Internal Revenue Service not to issue private letter
rulings relating to municipal participation. In the absence of an opinion of
counsel or a letter ruling from the Internal Revenue Service, the Municipal
Money Market Fund will refrain from investing in participation agreements.
INVESTMENT RESTRICTIONS
The most significant investment restrictions applicable to the Company's
investment programs are set forth in the Prospectus under the caption
"Investment Programs - Investment Restrictions". Additionally, as a matter of
fundamental policy which may not be changed without a majority vote of
shareholders (as that term is defined in the Prospectus under the caption
"General Information - Organization of the Company and Description of Shares"),
none of the Portfolios will:
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1) purchase any Municipal Security, if, as a result of such purchase, more
than 5% of a Portfolio's total assets would be invested in securities of
issuers, which, with their predecessors, have been in business for less
than three years;
2) invest in shares of any other investment company, other than in connection
with a merger, consolidation, reorganization or acquisition of assets;
except that the Municipal Money Market Fund may invest up to 10% of its
assets in securities of other investment companies (which also charge
investment advisory fees) and then only for temporary purposes in
investment companies whose dividends are tax-exempt, provided that the
Municipal Money Market Fund will not invest more than 5% of its assets in
securities of any one investment company nor purchase more than 3% of the
outstanding voting stock of any investment company;
3) invest more than 10% of the value of a Portfolio's total assets in illiquid
securities, including variable amount master demand notes (if such notes
provide for prepayment penalties) and repurchase agreements with remaining
maturities in excess of seven days;
4) invest in companies for the purpose of exercising control;
5) underwrite any issue of securities, except to the extent that the purchase
of securities, either directly from the issuer or from an underwriter for
an issuer, and the later disposition of such securities in accordance with
the Portfolios' investment programs, may be deemed an underwriting;
6) purchase or sell real estate, but this shall not prevent investments in
securities secured by real estate or interests
therein;
7) sell securities short or purchase any securities on margin, except for such
short-term credits as are necessary for the clearance of transactions;
8) purchase or retain securities of an issuer if, to the knowledge of the
Company, the directors and officers of the Company and the Manager, each of
whom owns more than 1/2 of 1% of such securities, together own more than 5%
of the securities of such issuer;
9) mortgage, pledge or hypothecate any assets except to secure permitted
borrowings and reverse repurchase agreements and then only in an amount up
to 15% of the value of any Portfolio's total assets at the time of
borrowing or entering into a reverse repurchase agreement; or
10) purchase or sell commodities or commodity futures contracts or interests in
oil, gas or other mineral exploration or development program (a Portfolio
may, however, purchase and sell securities of companies engaged in the
exploration, development, production, refining, transporting and marketing
of oil, gas or minerals).
In order to permit the sale of the Portfolios' shares in certain states, the
Company may make commitments more restrictive than the restrictions described
above. Should the Company determine that any such commitment is no longer in the
best interest of the Portfolios and their shareholders it will revoke the
commitment by terminating sales of its shares in the state(s) involved.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values or assets
will not constitute a violation of such restriction.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Company, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Company are usually principal
transactions, the Portfolios incur little or no brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to dealers serving as market
makers may include a spread between the bid and asked prices. The Company may
also purchase securities from underwriters at prices which include a commission
paid by the issuer to the underwriter.
The Company does not seek to profit from short-term trading, and will generally
(but not always) hold portfolio securities to maturity. However, the Manager may
seek to enhance the yield of the Portfolios by taking advantage of yield
disparities or other factors that occur in the money market. For example, market
conditions frequently result in similar securities trading at different prices.
The Manager may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of proceeds are expected to enhance yield
consistent with the Manager's judgment as to desirable portfolio maturity
structure or if such disposition is believed to be advisable due to other
circumstances or conditions. Each Portfolio is required to maintain an average
weighted portfolio maturity of 90 days or less and purchase only instruments
having remaining maturities of 13 months or less. Both may result in relatively
high portfolio turnover, but since brokerage commissions are not normally paid
on U.S. Government Obligations, Agencies, Money Market Obligations and Municipal
Securities, the high rate of portfolio turnover is not expected to have a
material effect on the Portfolios' net income or expenses.
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Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed to be in
the best interest of shareholders of the Company rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
The Manager and its affiliates manage several other investment accounts, some of
which may have objectives similar to the Portfolios'. It is possible that at
times, identical securities will be acceptable for one or more of such
investment accounts. However, the position of each account in the securities of
the same issue may vary and the length of time that each account may choose to
hold its investment in the securities of the same issue may likewise vary. The
timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of the Portfolios and one or more of these accounts is
considered at or about the same time, transactions in such securities will be
allocated in good faith among the Portfolios and such accounts in a manner
deemed equitable by the Manager. The Manager may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution. The allocation and combination of
simultaneous securities purchases on behalf of the three Portfolios will be made
in the same way that such purchases are allocated among or combined with those
of other Reich & Tang accounts. Simultaneous transactions could adversely affect
the ability of a Portfolio to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Provisions of the 1940 Act and rules and regulations thereunder have also been
construed to prohibit the Portfolios' purchasing securities or instruments from
or selling securities or instruments to, any holder of 5% or more of the voting
securities of any investment company managed by the Manager. The Portfolios have
obtained an order of exemption from the SEC which would permit the Portfolios to
engage in transactions with such a 5% holder, if the 5% holder is one of the 50
largest U.S. banks measured by deposits. Purchases from these 5% holders will be
subject to quarterly review by the Board of Directors including those directors
who are not "interested persons" of the Company. Additionally, such purchases
and sales will be subject to the following conditions: (1) the Company will
maintain and preserve a written copy of the internal control procedures for the
monitoring of such transactions, together with a written record of any such
transactions setting forth a description of the security purchased or sold, the
identity of the purchaser or seller, the terms of the purchase or sale
transaction and the information or materials upon which the determinations to
purchase or sell each security were made; (2) each security to be purchased or
sold by a Portfolio will be: (i) consistent with such Portfolio's investment
policies and objectives; (ii) consistent with the interests of shareholders of
such Portfolio; and (iii) comparable in terms of quality, yield, and maturity to
similar securities purchased or sold during a comparable period of time; (3) the
terms of each transaction will be reasonable and fair to shareholders of the
Portfolios and will not involve overreaching on the part of any person; and (4)
each commission, fee, spread or other remuneration received by a 5% holder will
be reasonable and fair compared to the commission, fee, spread or other
remuneration received by other brokers or dealers in connection with comparable
transactions involving similar securities purchased or sold during a comparable
period of time and will not exceed the limitations set forth in Section 17(e)(2)
of the 1940 Act.
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INVESTMENT RATINGS
The following is a description of the two highest commercial paper, bond,
municipal bond and other short- and long-term categories assigned by Standard &
Poor's Rating Services, a division of The McGraw-Hill Companies ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), Fitch Investors Service, Inc. ("Fitch"),
Duff and Phelps ("Duff"), and IBCA Inc. and IBCA Limited ("IBCA"):
Commercial Paper and Short-Term Ratings
The designation A-1 by S&P indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and ordinarily will be evidenced by leading
market positions in well established industries, high rates of return of funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issues rated Prime-2 (P-2) have a strong capacity for repayment of short-term
promissory obligations. This ordinarily will be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of
assurance for timely payment. The rating Fitch-2 (Very Good Grade) is the second
highest commercial paper rating assigned by Fitch which reflects an assurance of
timely payment only slightly less in degree than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by ample asset protection. Risk
factors are minor. Paper rated Duff-2 is regarded as having good certainty of
timely payment, good access to capital markets and sound liquidity factors and
company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a very
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are supported
by a strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
Bond and Long-Term Ratings
Bonds rated AAA are considered by S&P to be the highest grade obligations and
possess an extremely strong capacity to pay principal and interest. Bonds rated
AA by S&P are judged by S&P to have a very strong capacity to pay principal and
interest, and in the majority of instances, differ only in small degrees from
issues rated AAA.
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Bonds Rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category, the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions and
are liable to but slight market fluctuation other than through changes in the
money rate. The prime feature of an AAA bond is a showing of earnings several
times or many times interest requirements, with such stability of applicable
earnings that safety is beyond reasonable question whatever changes occur in
conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality with
negligible risk factors; only slightly more than U.S. Treasury debt. Bonds rated
Duff-2, 3 and 4 are judged by Duff to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
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Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly.
Municipal Bond Ratings
S&P's Municipal Bond Ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue bonds.
General obligation bonds are usually secured by all resources available to the
municipality and the factors outlined in the rating definitions below are
weighed in determining the rating. Because revenue bonds in general are payable
from specifically pledged revenues, the essential element in the security for a
revenue bond is the quantity of the pledged revenues available to pay debt
service.
Although an appraisal of most of the same factors that bear on the quality of
general obligation bond credit is usually appropriate in the rating analysis of
a revenue bond, other facts are also important, including particularly the
competitive position of the municipal enterprise under review and the basic
security covenants. Although a rating reflects S&P's judgment as to the issuer's
capacity for the timely payment of debt service, in certain circumstances it may
also reflect a mechanism or procedure for an assured and prompt cure of a
default, should one occur, i.e., an insurance program, federal or state
guaranty, or the automatic withholding and use of state aid to pay the default
debt service.
AAA
These are obligations of the highest quality. They have the strongest capacity
for timely payment of debt service.
General Obligation Bonds - In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds - Debt service coverage has been, and is expected to remain,
substantial. Stability of the pledged revenues is also exceptionally strong, due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenants, earning tests for
issuance of additional bonds, and debt service reserve requirements) are
rigorous. There is evidence of superior management.
AA
The investment characteristics of general obligation and revenue bonds in this
group are only slightly less marked than those of the AAA category. Bonds rated
"AA" have the second strongest capacity for payment of debt service.
S&P's bond letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign which designates a bond's relative quality within the major
rating categories, except in the AAA category.
S&P Tax-Exempt Demand Bonds Ratings
S&P assigns "dual" ratings to all long-term debt issues that have as part of
their provisions a demand feature.
The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity, and the
commercial paper rating symbols are used to denote the put option (e.g.,
"AAA/A-1+").
Moody's Municipal Bond Ratings
Aaa
Bonds which are judged to be of the highest quality are rated "Aaa." They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be anticipated are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as "high
grade" bonds. They are rated lower than the Aaa bonds because margins of
protection may not be as large as the Aaa securities or the fluctuation of
protective elements may be of greater amplitude, or other elements may be
present which make the long-term risks appear somewhat larger than in Aaa
securities.
Moody's State and Municipal Short-Term Ratings
Moody's assigns state and municipal notes, as well as other short-term
obligations, a Moody's Investment Grade ("MIG") rating. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in evaluating bond
risk may be less important over the short run.
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MIG 1
Notes bearing this designation are of the best quality. The notes enjoy strong
"protection" by established cash flows, superior liquidity support or a
demonstrated broad-based access to the market for refinancing.
MIG 2
Notes bearing this designation are of high quality. Margins of protection are
ample although not as large as in the preceding group.
Moody's Tax-Exempt Demand Ratings
Moody's assigns issues which have demand features (i.e., variable rate demand
obligations) a VMIG symbol. This symbol reflects such characteristics as payment
upon periodic demand rather than fixed maturity, and payment relying on external
liquidity. The VMIG rating is modified by the numbers 1, 2 or 3. VMIG1
represents the best quality in the VMIG category and VMIG2 represents high
quality.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
24
